Global Energy Forecast: Oil, Gas, Fusion or War?

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Oil is hostage to human laziness, fear and greed 

May 20, 2016

Alexey Anpilogov

Energy expert, Dnepropetrovsk native, president of Foundation for support of scientific research and development of citizen initiatives “Osnovaniye”, one of the leaders of Dnepropetrovsk resistance during the Russian spring of 2014, head of coordination center “The New Rus”, headed the Humanitarian directorate of Defense Ministry of Lugansk People’s Republic

Translated by Kristina Kharlova

Oil: shortage or surplus?

Oil at 30? Oil at 20? Oil at 50? Such questions constantly bombard the consumer of all the international and Russian media, discussing the issue of global energy supply and all the vicissitudes of production, transportation and sale of major global energy sources: oil, gas and coal.

As of 2015, these three energy sources: oil, natural gas and coal continue to occupy not just ‘lion’, but the overwhelming share in the global energy mix, accounting for 87% of primary energy consumed by humanity.

The remaining 13% also give us very little hope for quick replacement of oil, coal and natural gas energy, as it consists mainly of nuclear power (5%) and hydropower (6%), while the share of ‘trendy’ wind or solar energy sources account for only about 2% of global production of primary energy.

Thus, all the assurances of politicians and environmentalists that a new, infinite, affordable and renewable energy will soon replace the old, uncomfortable and polluting coal, oil and natural gas, remain just talk: despite the rapid growth of wind turbine and solar panel capacity, despite the fact that some European countries have achieved a high share of renewable energy sources (RES) in their energy mix, the introduction of renewable energy has revealed a lot of problems. Wind turbines and solar panels are quite expensive, and can be afforded by only the wealthy countries. Their production of electricity proved to be unreliable or fraught with the problem of accumulation of huge volumes of transport, industrial and household electricity consumption, and the ‘rapid’ and almost twenty-year growth in installed capacity of wind turbines and solar panels has brought all of humanity to only 2% of global energy production, which accounts for the share of renewables. “Electromobility” remains a pipe dream or a toy for very wealthy people.

Undoubtedly, the further growth of renewables is almost programmed in the policy of developed countries of the European Union and United States. In addition, developing countries such as China and India, also launched a massive program for installation and use of renewable energy sources. However, 20 years from now the balance of global energy consumption will be similar to today’s: most of consumed energy, simply because of inertia of any technological sphere, will be still provided by coal, oil and natural gas.

Why now is the price of oil so low, not seen since the beginning of 2000s? Was there a sudden discovery of cheap and available oil in the world? Or are the falling prices a result of a conspiracy aimed at the ruin of oil-producing countries? No, the real answer lies far from these simple, but wrong answers.

In the decade of 2005-2015, during the stable high prices for “black gold” the oil and petrochemical industry, as well as the sector of production and transportation of natural gas and coal, were flooded with huge investments. These investments, estimated globally in trillions of dollars, triggered a technological boom in oil production: the high price of hydrocarbons allowed to recoup the risks of exploration, development and operation of expensive, remote, and ‘capricious’ fields, which in the late 1990s seemed very unpromising. Relatively speaking, when oil cost $100 per barrel, it allowed to develop the oilfields with the cost of production of “black gold” at $80 per barrel (and achieve 25% profit), but it also produced super-profits back at some old Soviet field in Tyumen region, where the cost of production was $20 (return, respectively, exceeded 400%).

The old oil-producing countries under such market conditions literally ‘bathed’ in dollar showers, at the same time without thinking that ‘new’ oil, which gradually, year after year, replaced the oil from the old fields in the structure of oil reserves, is much more expensive than oil, discovered and developed in the 1970s or 1980s. In addition, oil-producing countries and oil companies have overestimated the safety margin of the global oil market: as it turned out, global economy can hardly withstand oil at $140, 100, or even $70 per barrel — such a high price of oil and related hydrocarbons caused a slowdown and a halt of industrial growth almost everywhere in the world and population abandoning the intensive consumption of oil and oil products. Wherever possible, people moved from personal vehicles to trains, buses or trams which consume less oil or none at all.

The global economy was in fact unable to adjust to high oil prices. What for Russia, Saudi Arabia or the United Arab Emirates has been a ‘golden shower’ dumped on their oil economies, for other countries had become a cruel tax on final consumption, when instead of a flood of consumer end products: cars, phones, washing machines or refrigerators, people in oil consuming countries were forced to pay the high price of oil to fund these ‘consumption economies’.

The result of a decade of expensive oil became the slowdown and a halt of the growth of global economy — due to a number of constraints, among which the hydrocarbon energy foundation was the main but not the only limit to growth.

The usual way out of such situations has always been the replacement of one technological system by another: as coal replaced muscular strength and wood energy in the early nineteenth century, oil replaced coal in the early twentieth century. In the 1980s, many futurists predicted the victory of nuclear energy over the departing oil age, the end of which was attributed to the beginning of the XXI century. This logic was prevalent in the beginning of peaceful atom era, as a reasonable way out of the finite and fragil oil abundance, characteristic of the twentieth century.

However, life made its own adjustments with the arrival of nuclear age. Classic reactors on decay of uranium atoms and plutonium had shown their potential danger in accidents at Three Mile Island, Chernobyl and Fukushima. Therefore, most countries either stopped nuclear energy programs or they were drastically slowed by “green” initiatives . The policy of pseudo-environmentalists, based on the use of wind turbines, solar panels and other options of “pure energy of nature” also proved to be a losing one. In the end, it has been 30 years since Chernobyl disaster, but the share of clean energy speaks for itself — 2% of global energy production will not build a “wonderful wonderful world”. But the halted growth of nuclear energy, which was predicted to reach the share of not less than the share of oil (33%) or coal (30%), is frozen at a sad mark of 5% — the fear of out-of-control “peaceful atom” is stronger than rational arguments.

In this situation, the world’s only hope is fusion power, where also, unfortunately, things are not too rosy — the International Thermonuclear Experimental Reactor (ITER) project was under threat of closure in the early 2000s, and its late start in the 2010s has once again confirmed a simple truth: creating a working fusion reactor requires a huge scientific and engineering effort of mankind, needing cash and human resources, as well as the most scarce resource — time.

As in the case with renewable energy, which in twenty years will not be the basis or even an important part of the overall power consumption of humanity, as in the case of shot down on take off nuclear energy which now has to be revived with the super efforts of designers and engineers, and in the case of the ITER project — the moment for the timely creation of an alternative to expensive oil, which inevitably takes the place of cheap oil has already been irretrievably lost.

In the best case scenario, even if the launch of ITER will take place in the mid 2020s, fusion energy even by the middle of XXI century is unlikely to take up a significant share in the production of primary energy for reasons of the same technological and social inertia, which must inevitably be considered in the analysis of energy issues of modern humanity.

From here follow all those unpleasant facts that become apparent on closer examination of the situation on the market of “cheap” oil, which, however, proved to be unaffordable for the global economy and increasingly expensive for oil producers. The technological revolution in the energy sector was delayed and will be delayed even longer, as none of the existing ideas of “energy of the future” solves humanity’s problems as they have been solved by coal in the early nineteenth century or oil in the beginning of the twentieth.

In the future, oil exporters might be able to sell oil to buyers for $100, but it will not affect the cost of its production which will inevitably rise. Oil is found deeper, farther to the North, and in increasingly inconvenient places — as, for example, shale, talked about so much over the past 10 years.

For all oil-consuming countries, this energy source will get more expensive, but there is no clear replacement on the horizon — the weak progress in batteries, issues with wind turbines and solar panels, concerns about nuclear energy and difficulties in the development of fusion energy do not allow to find a worthy replacement for “black gold”.

For some time the decline of production and increase in the cost of oil will be offset by increasing natural gas production, but even in the 1980s it became clear that the available resources of “blue gold” are also finite, so it was only a “gas pause”, during which it was necessary to resolve the issue of energy sources of the future.

Then, in the 1980s, the “gas pause” was thought of as a short era that may last for about 30 years. Now it is clear that there is more available gas in the world, and it will probably last another thirty years, even taking into account the desired economic growth. But this date is already too close to the pessimistic deadlines, which we have on the exhaustion of cheap oil reserves and on development of alternative forms of energy, to rely on natural gas as a temporary replacement for the outgoing “oil century”.

Thus, the world again stands on the threshold of global war for resources, which again are not enough. A new crisis of capitalism, which will be comparable with its crisis of the early twentieth century that led to the First world war, apparently, is not far off. Twenty years — that’s the limit of the current “oil and gas” stage of humanity in the most optimistic case.

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