Is Peak Oil the End of Liquid Fuels?

Across the world around 90 million barrels of oil are consumed in any one day. The vast majority of this consumption is in the transportation sector powering our planes, trains and cars. World oil reserves have stayed somewhat steady over the last decade however relatively few new “mega fields” have been discovered. The official statistics concerning these reserves are hotly debated with many analysts arguing the figure is actually much lower than what is officially stated. Petroleum politics between OPEC, other major oil producing countries and the world’s largest oil consumers make the picture of current world oil a murky one with a large degree of subterfuge and asymmetrical information.

Peak Oil is a phrase that has recently come into fashion to discuss the situation where oil extraction reaches its absolute limits and potentially starts to decline. What was initially a taboo subject in oil circles has become one of serious debate and concern. The oil industry has progressed from arguing against the entire principle of Peak Oil to stating that it is likely not going to occur for the foreseeable future. Other commentators disagree believing Peak Oil will be upon us imminently. Whatever the case may be, it is important to look into the likely effects of this situation for the automotive industry and discuss likely implications and possible strategies to minimise disruption and exposure.

Over 99% of the cars on the road today are powered by either petrol or diesel fuels that are derived from crude oil. These cars are fundamental components to almost everyone who uses them helping people commute to work, do shopping and family activities, take children to school and go on social and sporting trips. Without the use of our cars the world as we know it would grind to a halt leading to massive disruption and social distress. The Oil crises of the 1970s and 1980s gave the world a taste of the potential catastrophe that can emerge from a disruption in the oil supply leading to two economic recessions. Energy security is becoming a major concerning for large oil importing nations as the World’s oil reserves become more concentrated in unstable regions of the globe. It has been hypothesized that the recent wars in Afghanistan and Iraq were partially conducted with the aim of ensuring the Middle East continued to be a major oil exporting region.

Our exposure to the volatility of the oil market is extremely acute with little opportunity to substitute away from oil should supplies be disrupted or prices jump suddenly. As our worldwide vehicle fleet increases (estimated to double between now and 2050) and our oil reserves continue to dwindle, alternative forms of fuel will be required to fill the gap. Our entire fuelling infrastructure is currently built around liquid fuels including pipelines, tankers, trucks, stations and engines. So the big question is will Peak Oil signal the end of liquid fuels for vehicle transportation? Not necessarily.

Its right to state that no oil mega fields have been discovered recently but there is still plenty of oil out there in “marginal areas”. This marginal oil has yet to be tapped due to the expense which is associated with extraction. As the oil price has risen, some of these fields have become financially viable and big oil companies have started to make plans to exploit this resource. Marginal oil is already being extracted from the Canadian tar-sands with potentially large-scale ecological disruption to the local ecosystem and water resource. As climate change opens up more areas for petroleum exploration the chances of another big find will increase. The opening of the North-West Passage which many climate change scientists predict will happen will allow easier access to the arctic where some geologists believe large reserves of oil are located. Just recently off the west coast of Greenland an oil exploration firm struck oil in deep water.

Opportunity also exists for the vehicle market to diversify into other liquid fuels. In the past, natural gas was flared off when it emerged alongside oil due to our inability to store it. Now, as technology has developed alongside our need to diversify and increase our energy supply, natural gas alongside petroleum gas is being compressed and liquefied for easier transport to energy markets especially in Western Europe. The ability for cars to be retrofitted to run off Compressed Natural Gas or Liquefied Petroleum Gas has been long established and ExxonMobil has already built a state of the art LPG port in Wales allowing for supertankers full of LPG to supply energy to the UK market. What was once an unwanted bi-product of the oil extraction process is now becoming big business for energy firms.

If the World is running out of oil fast there is one fossil fuel where reserves are still exceptionally abundant. Coal has over 150 years worth of proven reserves at current extraction rates. Unlike oil, coal is much more evenly distributed across the globe leading to less exposure to energy instability. The process of coal liquefaction has been well established for over 50 years allowing a cumbersome fuel to be transformed into an easily transportable product. There are potentially severe environmental impacts associated with any large scale Coal-to-Liquid transition for transport fuels but this does still remain an option of many people’s lists.

Peak Oil will not necessarily mean the end for liquid fuels. There are enough substitute products out there to allow for our current transport energy infrastructure to remain relatively unchanged for the next 100 years. The big question is do we want to go down this road? Most of the options I have outlined above have significant environmental consequences attached and would not go hand in hand with the current global drive to avoid the worst potential effects of climate change. I still believe the best option for us as a global community is to pursue HEVs, PHEVs and EVs alongside reducing the carbon intensity of our energy generation systems. There are a great many substantial obstacles that will need to be navigated to get us there, the oil and liquid fuels industry is big, powerful and has a great many political connections. In order to reach the best solution it is important we don’t take this forward as a conflict but instead bring all stakeholders to the table and come to the best decision which will benefit everyone. If we stop fighting and start listening to each other I’m sure we’d be surprised by how much we have in common.