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i
PEAK OIL AND THE
NORTHERN LINK ENVIRONMENTAL IMPACT STATEMENT
SUBMISSION TO THE
QUEENSLAND COORDINATOR-GENERAL
Stuart McCarthy
Australian Association for the Study of Peak Oil and Gas
28 January 2008
We are now hobbled by a tragic psychology of previous investment – that is, having poured so much of our late-20th century wealth into this living arrangement – this Happy Motoring utopia – we can't imagine letting go of it, or substantially reforming it.
James Howard Kunstler
Peak Oil and the Northern Link EIS Stuart McCarthy, ASPO-Australia
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Contents
Executive Summary / 1Introduction / 2
About ASPO-Australia / 2
Peak Oil / 2
Implications for the South East Queensland Transport System / 14
Brisbane City Council, TransApex and Peak Oil / 19
Traffic Forecasting for PPP Road Tunnels: the Sydney Experience / 28
Shortcomings in the Northern Link Preliminary Assessment / 29
State and Federal Government Policy Setting / 30
Conclusion and Recommendations / 31
List of Figures
1. / The Growing Gap Between Oil Production and Discovery / 32. / World Oil & Gas Depletion Profiles: ASPO 2006 Base Case / 3
3. / World Liquid Fuel Production Plateau / 5
4. / World Oil Price Increases / 5
5. / Net Oil Exports from Top Exporting Countries / 7
6. / Declining Exports from World’s Top Five Exporters / 8
7. / Effect of Declining Spare Oil Production Capacity / 9
8. / Australian Oil Production vs Demand / 10
9. / Petrol Price Scenarios / 15
10. / Economic Cost of Car Dependence in Brisbane / 21
11. / Brisbane Morning Peak VKT vs World Oil Production / 23
12. / RiverCity Motorway Group Stapled Unit Price / 27
Peak Oil and the Northern Link EIS Stuart McCarthy, ASPO-Australia
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Executive Summary
World oil production is at or near its historic peak and will most likely begin to decline within several years. Net exports of oil available on the world market have probably entered a decline that will continue more steeply than the declining rate of production. Compounded by the impact of geopolitical circumstances, extreme weather events and other economic trends, the decline in oil availability will see dramatically increasing and highly volatile oil and fuel prices, oil supply shocks and impacts on economic growth, employment, demographics and transport patterns.
Australia’s economy, particularly its transport system, is highly dependent on growing supplies of affordable petroleum fuel, however domestic oil production peaked in 2000 and is now in decline. Based on official production and demand forecasts Australia would need to import approximately 66% of its oil by 2015, in a setting of rapidly declining availability and increasing prices in international markets.
South East Queensland’s transport system is extremely vulnerable to the impact of peak oil due to its high dependence on private motor vehicles and road freight. The car fleet that confronts the 2010-2015 setting of high oil import dependence, declining availability of exported oil, steeply rising prices and periodic oil shocks, will not be significantly more fuel efficient than the current one. A longer term transition to alternative fuels and propulsion systems on a scale sufficient to realise present forecasts of growing traffic is extremely unlikely due to enormous constraints imposed by thermodynamics, cost and scale of both the vehicle fleet and supporting alternative energy infrastructure.
The TransApex feasibility studies on which the Northern Link proposal is based are seriously flawed. Traffic forecasting and modelling excludes any consideration of fuel prices or availability and assumes no changes in mode share or travel behaviour. Cost benefit analyses exclude the economic costs of existing car dependence and increasing vulnerability to oil supply disruptions. Economic assumptions exclude consideration of the impact of declining world oil production.
Peak oil and its impacts have been well known to Brisbane City Council planners and senior officials for several years. Numerous in-house reports, commissioned studies and public submissions regarding the impact of peak oil on Brisbane’s transport system and the feasibility of TransApex projects have been disregarded. As the proponent for the Northern Link, Brisbane City Council has a history of compromising the public interest in the pursuit of political interests.
In order to adequately protect the public interest, the Terms of Reference for the Northern Link Environmental Impact Statement needs to eliminate any scope for the proponent to continue to ignore or dismiss the impact of peak oil on the project. The amendments to the Terms of Reference recommended in this submission are intended to achieve this objective.
Introduction
The Northern Link project is a proposed 5.5km-long road tunnel that would link the Western Freeway and the Inner City Bypass in Brisbane. As the proponent, Brisbane City Council (BCC) has referred the proposal[1] to the Queensland Government and it has been declared to be a project of State significance. This is a submission to the Coordinator-General on the Draft Terms of Reference (ToR)[2] made available for public comment.
Clause 2.2 of the Draft ToR requires the proponent to assess “the sensitivity of modelling assumptions to large changes in global oil availability and oil price vulnerability over the life of the project”, including likely travel behaviour changes, expected traffic volumes, possible shifts to other transport modes, and the overall viability of the project (p. 9). While the inclusion of this clause is applauded, ASPO-Australia does not consider that this adequately protects the public interest given the likely impact of declining world oil production on the project, the history of the proponent in omitting this factor from previous proposals of this nature, and the resulting financial risks. This submission recommends that the most likely scenario for declining world oil production must be included in the reference case for the Northern Link proposal.
About ASPO-Australia
ASPO-Australia is a non-partisan network of professionals working to reduce Australia’s oil vulnerability, by bringing the probabilities, risks and opportunities presented by peak oil to the attention of decision-makers. Our membership includes scientists, geologists, engineers, transport and urban planners and a wide range of other professionals, comprising working groups focusing on the implications of peak oil on different sections of the community and the economy. The patron of ASPO-Australia is the Honourable Andrew McNamara MP, chair of the Queensland Government Oil Vulnerability Task Force and Minister for Climate Change, Sustainability and Innovation.
Peak Oil
The term ‘peak oil’ refers to the maximum rate, i.e. ‘peak’ of production in a given oil well, oil field, oil producing country or region, beyond which it goes into irreversible decline. Strong evidence exists that world oil production is now at or near its historic peak. World oil discovery peaked in the late 1960s and the oil production rate has exceeded the discovery rate since the early 1980s. In 2006 the production rate was four times the discovery rate, as illustrated in Figure 1, i.e. only one barrel of oil is being discovered for every four that are currently being used, even before the long lead-times for bringing new oil fields into production are considered. Numerous independent studies have been conducted into the likely timing of peak oil and subsequent production decline rates. Typical of these is the ASPO ‘Base Case’ by Colin Campbell at Figure 2, which predicts that the peak will occur in 2010.
Figure 1. The Growing Gap Between Oil Production and Discovery.
Figure 2. World Oil & Gas Depletion Profiles: ASPO 2006 Base Case.
The recent report by the Queensland Government Oil Vulnerability Task Force (the ‘McNamara Report’) includes a statistical analysis of published oil depletion studies to determine the probable timing of the peak, finding a mean prediction of 2013 with a standard deviation of +/- 7 years, i.e. production may have peaked as early as 2006 or may peak as late as 2020. This analysis includes outdated and discredited forecasts including those based on the 1995 United States Geological Survey (USGS) mean case of a 3 trillion barrel world ultimate recoverable reserve (URR), but notes that the majority of predictions made since 2000 predict a peak between 2005 and 2010.[3] Since the McNamara Report several further studies have been published that predict peaks between 2005 and 2018:
· Fredrik Robelius, Giant Oil Fields - The Highway to Oil: Giant Oil Fields and their Importance for Future Oil Production, Uppsala University, September 2007.[4]
· Werner Zittel and Jörg Schindler, Crude Oil: The Supply Outlook, Energy Watch Group, October 2007.[5]
· Chris Skrebowski, Megaprojects Update: Just How Close to Peak Oil are We?, presentation to the ASPO-USA 2007 World Oil Conference, 18 October 2007.[6]
· Kjell Aleklett, Peak Oil and the Evolving Strategies of Oil Importing and Exporting Countries: Facing the Hard Truth About an Import Decline for the OECD Countries, OECD Joint Transport Research Centre, December 2007.[7]
Including these studies and excluding the discredited ones from McNamara’s analysis brings the mean close to 2010 and narrows the standard deviation, making the ASPO 2006 Base Case an appropriate ‘reference case’ on which to base world oil production forecasts.
Peak oil is often misconstrued as ‘running out’ of oil, however in reality the world will never ‘run out’. Typically only about one third to one half of the ‘oil in place’ is able to be recovered. Even the best oil extraction technology and most expensive recovery methods see only marginal improvements in overall recovery rates regardless of the question of economic viability. The nature of the peak oil problem is that overall production will peak within the next several years then begin to decline irreversibly. While world demand for oil has surged largely as a result of rapid economic growth in developing countries such as China and India, the rate of world liquid fuel production has been on a ‘plateau’ at approximately 85 million barrels per day since 2005 despite record oil industry profits and spending on infrastructure and exploration. This is the underlying trend behind oil market ‘tightness’ causing a fivefold increase in oil prices since 2002, a trend that will continue as the gap widens between growing demand and declining production. Figures 3 and 4 show the recent production plateau and price increases.
Figure 3. World Liquid Fuel Production Plateau.
Figure 4. World Oil Price Increases.
Agencies such as the OECD’s International Energy Agency (IEA) and the US Government’s Energy Information Administration (EIA) have tended to forecast world oil production reaching approximately 115-120 million barrels per day in 2030, by extrapolating demand growth patterns into the future and assuming that supply will meet demand due to ‘market forces’. Such forecasts of increasing production are usually accompanied by forecasts of steady or even slightly decreasing prices into the medium and long term. For example the current EIA reference case forecasts prices to fall to $49 per barrel in 2014 then rise to $59 per barrel in 2030.[8] Price forecasts by the Australian Bureau of Agricultural and Resource Economics (ABARE) are similarly over-optimistic, despite having been continually discredited.[9] The current ABARE forecast predicts oil prices to average $US77 per barrel in 2008 even after acknowledging the increase to $US98 per barrel in November 2007.[10]
The realisation that oil is a finite resource whose production is limited by geology and the laws of physics, as opposed to the ostensible ‘laws’ of economics, has seen these production and price forecasts widely discredited in recent years. In its most recent medium term forecast the IEA warned of an oil “supply crunch” by 2012[11] and Chief Economist Fatih Birol recently stated that he now envisages “price levels much higher than we conventionally believed in the past" due to “an earthquake” in his thinking about world oil production.[12] The agency is now reviewing its reliance on USGS reserve estimates,[13] which will likely result in future IEA oil production forecasts being brought more into line with the above assessments that predict a production peak within the next decade. Nonetheless, current IEA and EIA oil production and price forecasts, or the assumptions contained therein, continue to be reflected in many transport infrastructure feasibility studies.
Peak oil production is being compounded by growing domestic consumption in the key oil producing and exporting countries, resulting in declining net exports available on the market for net importers such as Australia.[14] Total net exports from the world’s top 20 exporting countries have been trending downwards since mid-2005 (see Figure 5). A recent study by oil industry analysts Jeffrey Brown and Samuel Foucher produced a ‘middle case’ scenario in which exports from the world’s top five oil exporters decline by 6.2% per year from the present rate of approximately 24 million barrels per day to approximately 12.5 million barrels per day by 2015 (see Figure 6),[15] i.e. a decline equivalent to one quarter of the world’s internationally traded oil over the next seven years. This analysis is reinforced by Jeff Rubin, Chief Economist & Chief Strategist for Canadian Imperial Banking Corporation (CIBC) World Markets, who recently assessed that world exports will decline by 2.5 million barrels per day over the next three years.[16]
Figure 5. Net Oil Exports from Top Exporting Countries (EIA/BP).
For several years, peak oil proponents have posited that the supply/demand balance and price behaviour as world production neared the peak would manifest a ‘bumpy plateau.’ As supplies tighten, prices rise to a point that inflation slows demand and economic growth, a phenomenon economists call ‘demand destruction’. Economic recession sees prices ease and economic growth restored temporarily. Overall, the years of the bumpy plateau would be marked by flat production and rising but highly volatile prices. From a public policy perspective, these confusing ‘price signals’ would be inadequate in and of themselves to formulate adequate responses without considering the fundamental supply situation.
Evidence from Figures 3 to 5 suggests that world oil production has been on the ‘bumpy plateau’ since 2005. While production increases may still be possible, these will most likely be modest and short-lived. The actual peak will be recognised only in hindsight as the decline trend is established, a circumstance that is now perhaps several years away at best. Prices have risen fivefold in as many years and are highly volatile, with a $US20 decline in the second half of 2006, then a $US40 rise in 2007.