Oil production in Australia peaked in 2000. It would have peaked worldwide too by now, had it not been for the shale oil boom in the US.
Some interesting work by this country’s most unrelenting peak oil proponent, retired engineer Matt Mushalik, shows that without shale oil – which accounts for 1.5 million barrels a day – world oil production last year was back at 2005 levels. It seems a monumental economic crisis may have been averted.
Still, the price of crude oil has stubbornly hovered around its present mark of $US108 a barrel for the past three years even as shale oil production has ramped up.
For motorists in Australia, should consensus predictions of a falling Australian dollar come to pass, prices will head higher at the petrol pump in coming years.
This currency effect, however, is a sideshow compared with the big question of world oil prices and production.
Thanks to the shale oil boom, the more alarmist cries of the peak oil brigade have been subdued. Even with advancing technology and ever more sophisticated extraction methods though, it is London to a brick that the price of crude oil will rise sharply in the longer term.
You would think then that peak oil might be factored in to major policy decisions about the future of the nation and its infrastructure.
Energy security is paramount.
But it is not so. In early 2012, then industry minister Kim Carr declined to table the federal government’s peak oil report BITRE 117 before a Senate hearing on grounds that it was ”not up to scratch”.
Later that year, the energy white paper also failed to deliver an updated version. Research on oil, perhaps the most critical commodity for Australia’s long-term security, has been abandoned.
As the Abbott government grapples with the tricky question of how to fund big projects ahead of public hearings on infrastructure next month, the question of oil prices is not even on the agenda.
Already, the bias of state and federal governments for roads over rail has been well documented. As oil is the most critical commodity in fuelling any transport option, you could be forgiven for thinking that it should be on the agenda.
Nothing in the issues papers, nothing in the draft report from the Productivity Commission. It seems to be an article of faith that people will keep finding oil somewhere, so let’s not give it a second thought.
In an interview with the US Association for the Study of Peak Oil and Gas in January, an ex-Saudi Aramco geologist, Dr Sadad Al-Husseini, predicted oil price spikes of $140 by 2016-17.
”My base oil price forecast in 2012 dollars still ranges between $US105 and $US120/barrel … with a volatility floor of $US95/barrel and more probable upward spiking to $US140/barrel within 2016-17.”
Dr Al-Husseini’s forecast in 2009 of a limited plateau of oil supplies appears to have been vindicated. He said the plateau might have been inflated thanks to high-cost unconventional oils but major forecasters see this as pretty much transitional. ”The plateau itself remains a reality and unfortunately its duration is still unlikely to extend beyond the end of this decade.”
He highlighted several factors that would inhibit the expansion of production, including decline rates (more extreme than ever with shale oil and deep offshore), limited investments (quadrupled capex/barrel in the past few years) and economic growth (still recovering). ”In the long term, reserves depletion remains very high with totally inadequate reserves replacements regularly obscured by resorting to claiming ‘resources’ as reserves.”
The industry has moved into a higher-cost paradigm with very limited growth in conventional oil and condensate supplies, accelerated ”proven” reserves depletion and high levels of violence and conflicts around the world’s major basins of low-cost oil production.
Australia is fortunate in having enormous gas resources. Still, with the world population forecast to grow to 11 billion by the end of this century and the developing economies ever-thirsty for oil, it would seem foolish to ignore the oil price in long-term infrastructure planning.
Mind you, short-termism is an affliction not merely contained to oil. In the annual Mitsubishi lecture back in 2010, Don Elder, chief executive of coal company Solid Energy, said there was enough in coal reserves for 100 years. Yet in one more generation, global demand for food and energy would double.