Fuelling Food in a World with Low Oil

1. FUELLING FOOD IN WAHow will we eat when oil runs low?Jeremy Gilbert, Barrelmore Ltd.

2. FUELLING FOOD IN WAWho will we eat when oil runs low?Jeremy Gilbert, Barrelmore Ltd.

4. The tank is emptying! Our lives are highly dependent on fossil fuels It seems supply will soon fail to meet demand – prices are rising ….

5. International Energy Association : “ There are three problems: Geology Investment Policy of main producers These, taken together, make the future of oil very difficult ” Fatih Birol Chief Economist

6. Our Endowment of Oil Argument continues over volume of initial oil resources and associated reserves (the part of resources that is economically recoverable) • Uncertainties due to limited data, secrecy, lack of standard calculation methods • Some believe major discoveries still to be made • Some believe technology will increase recovery factors

7. Doubts over World Reserves …. RESERVES AS REPORTED BY: • Oil and Gas Journal • World Oil • BP • BGR • AGIP

8. …. and more doubts! …. Reserves Claimed (billion barrels) Competing for production quotas?

9. … and more doubts …

10. 80 70 60 50 40 Discovery Gb 30 20 10 0 1950 1960 1970 1980 1990 2000 2010 2020 Past P95 Mean P5 - …. and more doubts still!

11. Maturity of World’s Producers 21 countries produce over 85% of world’s oil 6 are clearly declining 6 are flat/volatile, near decline 6 could grow but have non- technical/political limits 3 have potential for some increase

12. Is a Production Increase Possible? The arguments ‘for’: • New major discoveries • “Reserves to Production Ratio” (R/P) is being maintained despite offtake rising • Better technology will increase recovery efficiency

14. The R/P Placebo Field rate declines after ~ 50% of reserves produced Total rate not constant, declines ~ 4% /year. After 40 years rate is ~ 20% of original

15. Effects of New Technology Little indication that recovery efficiency is increasing in established fields. Main benefits in coping with unexpected problems and in finding small accumulations

16. Control of Reserves and Production From Ray Leonard, KEC Huge change from 40 years ago, when ‘Seven Sisters’ ruled the international oil world

17. Exploration and Investment Policy:1. (Western) Independent Companies Limited geographical opportunities Harsh economic terms Unstable price projections have resulted in Falling Production Restricted exploration/development funding

18. Exploration and Investment Policy2. OPEC and National Companies Saudi production capacity will grow to 12.5 mmbd from current 11.3 mmbd by end-2009 BUT King Abdullah (April 2008) : When there was some new oil found I said ‘No, leave it in the ground. With grace from god, our children will need it’

19. Predicting Production Capacityfrom Wikipedia

20. If it looks like a peak – and it feels like a peak – then ….! World Oil production (mmb/d) Source: BP

21. World Production

23. ‘Business as Usual’ Demand Growth How will restricted supply / higher prices alter these?

24. World GDP and Oil Production

25. National GDP and Oil Production

26. Supply/Demand and Consumer Prices About 50% of world population have been shielded from increases in oil prices Malaysia uses 7.5% of GDP for subsidies Indonesia uses 4% China, India, Vietnam, …….. In 2007 Saudi reduced petrol prices by 25% BUT….

27. Supply/Demand and Consumer Prices … in much of the rest of the world Governments increase consumer prices

28. Initial Response to Tighter Supply Many industries starting to feel effect: Agriculture Fertilizer usage pattern changes Ethanol emphasis causing disruption Airlines Routes and staff cut, planes grounded Automobiles Sales declining, smaller cars, fewer miles Electricity Generation Black-outs, price increases

29. Why we need fertilizers! • World arable land area has increased by only 13% since 1960 despite 120% increase in population since then

30. Fertilizer Problems Farm Productivity increases are essential Arable land area only up by 13% since 1960 - despite 120% increase in population Ammonia (Haber process) uses 33 mscf/ton Costs have near tripled in one year, supply insufficient for 40% world population’s food New interest in cow manure, Chilean guano!

31. Worldwide Fertilizer Use Patterns

32. Changes in Farm Output? Reduced energy availability will force human dietary changes? Source: McKay, “Sustainable Energy – without the hot air’

33. Changes in Farm Output - Vegetable Initial drive for corn ethanol has passed Breakthrough in processing of cellulosic material will come Research into growth/processing of other oil-source crops(switch grass, jatropha, ….)will bring new opportunities

34. Changes in Farming Methods Conservation Tillage – or ‘No Till’ Reduce soil erosion Cut labour costs by 40% Cut fuel costs by 75% Reduce capex up to 50% Increasing in Americas, Australia; only 6% globally Return to horse power on small farms

35. Evaluating Alternative Energy Sources Must consider Technical Readiness, Scaling Financial Viability Energy Return Environmental Impact Longevity

36. Energy return: A Vital Criterion • Source: C.A.S. Hall, C. Cleveland

37. Filling Medium-term Energy Gap Clear that economic supply from ‘sustainables’ will be too small to fill short to medium-term gap Only candidates to fill gap in this period Unconventional Fossil Fuels Oil from Shale or Tar Sands Gas-to-Liquids, Coal-to-Liquids Coal – with CCS Natural Gas Nuclear - but contributions needed from all sources!

38. Liquid Energy: Tar Sands Huge resource in Canada, Venezuela(resource 2-3times world oil resource);also Russia, Middle East Recover oil by mining/retorting or in situ heating Huge water(3-10 bbl/bbl)and gas(1 mscf/bbl)demands and cost inflation, environmental concerns(water and spent sand)slowing development Targets will not be met; long term possibility

39. Liquid Energy: Oil ‘Shales’ Marls with particles of immature hydrocarbons Trillions of barrels in west US, NE Australia, Brazil, China Recover oil by mining/retorting or heating in situ Environmental problems: water demand (3 bbl/bbl) and disposal, shale disposal (2 ton/bbl), high CO2 Commercial tests: Exxon (1980s), Queensland (2001), Estonia; now by Shell and others in Colorado At best, a long term solution

40. Liquid Energy: Gas-to-Liquids Direct Process: energy intensive and difficult to control – no commercial application yet Complex Indirect Process: converts CH4 to syngas, then to longer-chain HCs. Used for strategic reasons(S. Africa)or stranded gas(NZ, Malaysia) New Exxon plant built in Qatar but plans for others dropped in favour of LNG exports Long term potential if gas supply allows

41. Liquid Energy: Coal-to-Liquids Potential Established process; S. Africa uses since 1955, now source for 30% of its petrol/diesel Rising coal prices, x3 in year, impact economics Environmental problems: water use (10 bbl/bbl), CO2 output (50 lb/gal. v 27 lb/gal. for refinery) CCS could reduce CO2 output (to 20 lb/gal) Potential source, if CCS developed

42. Other possible liquid HC sources Biofuels First generation Sugar, starch, vegetable oils Limited by competition with food usage Second generation Cellulosic, non-food Awaits technical breakthrough Third generation Biodegradable fuels from algae Good medium term potential?

43. A Plant in your Tank? Algae produce 30 x energy/area of other crops. Grow on marginal land, saline water Long running pilot in US until 1996; limited operations now in New Zealand and US Need to find strain with high oil/mass ratio, fast growing and easy to harvest Trials involve both open systems (sewage ponds) and closed (polytubing and CO2)

44. Adding it all up: Energy supply shortages (and high prices) inevitable. Will start soon, last for at very least a decade Major long term changes to our way of life will be forced on us: Transport Housing - size and location Leisure Agriculture and Food Population Size

45. “OK, it’s agreed – we announce that to do nothing is not an option and then we wait and see how things pan out”from ‘Private Eye’

47. RESERVE SLIDES