Out of gas?

The World’s oil reserves are drying up. Are we headed towards an energy crisis?

By S S Jeevan

In 1956, legendary geophysicist King Hubbert predicted that US oil production would peak in early 1970s and then slowly decline, in something resembling a bell-shaped curve. At that time, governments scoffed at him and experts rubbished his theory. But his prediction came true in 1970 and following the Arab oil embargo in 1973, prices of oil quadrupled. Forty-five years later, Kenneth S Deffeyes, another geophysicist and professor at Princeton University, used Hubbert’s methods to make fresh forecasts in 2001. It is a scary one: global oil production will ‘peak sometime between 2004 and 2008, and the world’s production of crude oil will fall, never to rise again’.

Is the world running out of oil? And is the 100-year petroleum era nearly over? Two recent developments give credence to this theory. Earlier this month, The New York Times reported that oil major Shell had over-estimated its proven oil reserves in Oman by as much as 40 per cent. The scandal led to the sacking of Philip Watts, Shell’s head of exploration and development. Shell may not be alone. Most oil companies and even governments are known to notoriously hype estimates of how much oil they have.

On March 31, the Organisation of Petroleum Exporting Countries (OPEC) decided to cut oil production by 1 million barrels per day, pointing towards a new era of higher oil prices, particularly as demand has increased sharply, especially in Asia. Even the respected New Scientist magazine recently said that peak production year is 2004. Virtually all experts believe that we will certainly be staring at an oil crisis much before the end of this decade.

A growing number of geologists and energy analysts say that global oil reserves may be dangerously exaggerated. “An amazing display of ignorance, deliberate ignorance, denial and obfuscation by governments, industry and academics on this topic,” as geologist Colin Campbell puts it in his award-winning book The Coming Oil Crisis.

In 2000, global production stood at 76 million barrels per day (MBD). By 2020, demand is forecast to reach 112 MBD, an increase of 47 per cent. But additions to proven reserves have virtually stopped and it is clear that pumping at present rates is unsustainable. With oil prices currently at around $38 a barrel, the highest for nearly 15 years, and the threat of diminishing supply, the question of reserves has assumed a greater importance than ever. Especially for a country such as India that is pitifully dependent on imports to take care of its energy needs.

Oil’s not well
India is one of the top six oil-consuming countries in the world. But it has just 0.4 per cent of the world’s petroleum reserves. More than 70 per cent of the country’s oil requirement is met by imports -- 45 per cent of which is from politically volatile countries in the Middle East. Between 1990 and 1999, net imports of crude oil and petroleum products more than doubled. So even a slight increase in international oil prices has huge repercussions on the economy. Consider this: if oil prices rise by US $1, India’s annual oil bill can increase by US $600 million. The International Monetary Fund estimates that every rise of US $5 in the cost of crude oil lowers India’s Gross Domestic Product by 0.5 per cent, raises inflation by 1.5 per cent, and leads to an outflow of Rs 18,000 crore.

Oil also fuels the transportation industry -- 75 per cent of transportation runs on oil. So the cost of transport fuel has a greater impact on the price line since trucks transport many goods. The volatile global oil market has had a telling effect on India. Since April 2000, the price of diesel has gone up by 40 per cent and that of petrol by 23 per cent. And this trend is only bound to get worse.

Estimates suggest that India’s GDP will grow at an average of 5.2 per cent per year till 2025, and oil demand will grow by 4 per cent a year. This translates to oil demand shooting up to 274 million tonnes in 2025. Now it is 115 million tonne a year. India did made some feeble attempts to procure gas from other sources. But these efforts came a cropper. Unocal of USA, which discovered gas in the Bibiyana field of northwest Bangladesh in 1998, wanted to build a 1,363-km pipeline to export gas. But the Bangladeshi government has been unable to decide if it wants to allow export of gas to India. Now officials are negotiating with Myanmar for its oil and gas reserves in the hope that Bangladesh will sign the agreement.

The pipeline from Iran to India via Pakistan has been discussed for over 10 years. But nothing much has happened. An undersea pipeline fetching gas from Iran or Qatar is yet to take off. Another project to fetch gas from Oman has been shelved after eight years of study and expenses of Rs 330 crore. An undersea pipeline is anywhere between two to ten times as expensive as one over land. The process to deregulate the oil sector has been going on for some time now. But experts are quite pessimistic about the NELP (New Exploration Licensing Policy), which they say will not be able to meet the rising demand. Privatising the sector too could well be a stopgap arrangement, nothing short of buying time. Sooner or later oil reserves are going to dry up the world over.

A renewable crisis
It is fashionable to talk of renewable energy, even for the oil cartel bigwigs. Substitutes for oil exist: fusion, fuel cells, high-powered batteries, electric, solar, hybrid etc. But none of them are worth a thing because nobody has prototyped it to be sold on a large scale. The nexus of governments and oil industry is far too strong for even those wanting to make earnest efforts at renewable energy.

There is one other reason why renewable energy sources are at a disadvantage: subsidy. In most countries, taxpayers’ money is used to subsidise the price of fossil fuels, keeping them artificially low. Because of this renewable energy options remain uncompetitive. And cleaner-fuel cars are prohibitive to say the least. So any possibility of a transition to cleaner energy options like solar and wind power or fuel cells remains elusive. Is there a way out?

In 1987, the Indian government’s Renewable Energy Development Agency set up a number of programmes to reduce oil-based electricity usage. Today, we are the largest user of photovoltaic systems in the world. China too adopted a nationwide energy efficiency programme in the 1980s. Within a decade, overall energy intensity fell by 50 per cent even as its economy grew rapidly. As Hubbert’s predictions threaten come true in a fuel-guzzling world, we need to realize that we are heading towards a slippery future.

(New Indian Express, May 2, 2004)