Peak Oil Evasion Tactics Scraping The Barrel

By: Andrew_McKillop

Probably well-intentioned but always ineffective oil saving plans, schemes and notions are reaching the limit of their low effectiveness, a rising number of indicators suggest. In a week where newswires tell the story of French election-oriented attempts by the outgoing Sarkozy government to persuade the IEA's main powerbrokers to release oil stocks, and shave a few cents off the price of car fuel in time for Sarkozy's re-election bid, this is schizophrenically opposed by the same French government. It is pressurizing other EU governments to further tighten their oil embargoes on Iran. 

Cutting Iranian supplies to Europe, possibly by as much as 400 000 barrels a day from July 1st, the date at which "full embargo" may be applied, can only be offset by breaking out strategic stocks for so long. Hopes that Saudi Arabia will wade to the rescue with "all the oil you want - at $125 a barrel" may not translate to real world action. Oil is scarce.

Upstream of that, a host of oil saving and demand shaving tactics, rather than policies by the  world's most oil-hungry importers are reaching clear limits. The core oil-dependent sectors of the economy are being increasingly impacted in trade-offs where the cost of oil saving clearly outstrips the gains in reduced oil demand - or more precisely reduced rates of oil demand growth. Even worse, a clear majority of these hastily thrown together tactics tend to raise oil demand in the longer-term.

THE DIESELIZED SMALL CAR CAR FUTURE
Unknown to many but coordinated by the IEA, car fleet dieselization is now a 25-year-old doctrine resulting in some countries, especially in Europe, now having close to 75% dieselized car fleets and 80% of new car sales as diesel models. This has compressed per-car fuel consumption to possible limits of economy in Europe, but is opposed by fleet size effects and increasing road congestion producing stop-start driving conditions. Relative to Europe, the US is still "up the curve" helping explain why the US car fleet's total oil demand is falling, or at least not growing despite car fleet size growth. 

The logic of a shift to diesel was simple: a litre of diesel fuel has about 10% more energy than the same volume of gasoline, and heavier, dirtier and formerly much cheaper crudes can be used to "crack" for diesel albeit at higher refining costs and with more pollution. Sold to the public as "clean diesel" the result of massive builds in diesel fuelled vehicles is clear in every major European city. The intensity of fine particulate and carcinogenic diesel fuel pollution has risen to the extent that, under warm and windless March conditions, car drivers in major cities like Paris are asked to either not use their diesel sedans or to please try driving at 20 kilometres-per-hour when they can.

Due to world oil supply being tight, high-sulphur crudes are no longer heavily underpriced relative to light crudes as crude prices are drawn up together in a converging trend well shown by recent issues of the IEA's reference publication the Oil Market Report. The spread between high sulphur crudes and light crudes has shrunk to only a few dollars from spreads up to $15/bbl. To be sure, the real answer to car energy shortage is a gas-shift for car fleets but no major government wants to take the initiative, making certain that car fuel prices will stay high, or increase further.

Until about 2008, in a short window of opportunity we can place at 2005-2008 the lure of biofuels rode high as an enticing alternative, on paper and in glossy Powerpoints, for high-priced oil. Since 2009, and the collapse into bankruptcy of countless biofuels start-ups, understanding has spread that using food crops to make fuel is high priced and oil-intensive. With EROIs, or net energy yields sometimes less than one, meaning that more than 1 litre of oil is needed to produce the 1 to 1.25 litres of biofuel that can substitute 1 litre of oil, even supposed never-fail investors like Bill Gates had to beat a retreat from speculative plays on biofuels, called "investing", in his case after losing $44 million. The short and failed biofuels boom however left enduring dirt rings up the bathtub, as an accelerating factor for higher food prices worldwide - helping trigger the bloody Arab Spring revolts that continue today.

OUTPLACEMENT AND THE ENERGY LEAN ECONOMY
Another oil saving trick or tactic, certainly not policy is to push manufacturing and the jobs and profits that go with it, over the horizon to China and other Emerging economies, then transport the energy-intensive manufactured products using oil-intensive transportation. This produces an apparent cut in oil demand, in the de-industrialized countries operating outplacement, and a sure and certain growth of oil demand in the industrializing countries supplying the real world goods to "postindustrial" consumers.

The neoliberal policy of outplacement was based on exchanging financial paper, low energy cost CDs loaded with music or computer programs, and marketing rights for foreign produced jeans or iPhones, against oil-intensive imported manufactured goods, with China using the oil to make it possible ! Losing the value added except at the start and end of the value chain, this guaranteed-loser tactic hung on for a long time and in its heyday was described in Mrs Thatcher's unforgettable rhetoric as "No Alternative". In the British case the fat revenue inflows from exporting North Sea oil financed and subsidized this economic hara kiri and political posturing - called policy - for a long while, but certainly not forever. Peak Oil is a countdown process.

Today, after losing 50% of its oil production capacity through depletion in the 10 years since 2001, the oil-importing UK has massive "structural" trade deficits, similar to the US and several other outplaced, formerly industrial nations facing extreme high trade deficits on the bulk of the consumer industrial products filling their supermarkets. Countries that have maintained a large role for industry, like Germany and South Korea are absent from the trade deficit party, proving that outplacement snakeoil tactics only buy a short holiday from reality and do weaken the economy. The oil saving inside the economies of the de-industrializing countries is in fact low, and temporary, shown by oil demand rebounding even under weak economic growth, and only contracting during deep recession.

Looked at by its energy and oil implications, outplacement and de-industrialization is a guaranteed way to increase world oil demand. Producing a large slice of all basic manufactured items "over the horizon" drives the massive growth of world container and bulk shipping: the 10-year trend, with a single breakpoint in 2009, is for growth rates of around 7%-a-year. 

World bulk and container shipping now consumes about 1.7 billion barrels of bunker oil per year, 4.6 million barrels/day, as much oil as Japan, or nearly two times the total oil demand of Germany.

Inside the so-called "lean postindustrial economy", recovery of demand for industrial products headed by car production and sales is, ironically, hailed as a sign of recovery. In the US case and for 2012, car sales may reach 13.5 million, and this car output, under US conditions, will generate an average 14 barrels-a-year oil demand for each new car. World new car output in 2012 is forecast at about 79 million units, with a global average of around 9.5 barrels/year for each car's consumption. While the talk of gas-fuelled cars is nice, 98% of the real world car industry's output is oil-fuelled cars.

World food production remains heavily oil dependent and a very uncertain candidate for major oil saving and substitution: the US agriculture system's annual average oil demand is close to 3.5 barrels per hectare of farm land, versus up to 10 barrels per hectare in Japan, and 4 barrels/hectare/year in Europe. Oil demand for food production is raised further peesticide and fertilizer needs, and through global trading and transport of foods including the last word in oil waste - airfreighted foods - making sure that ever more oil is behind and underneath every dinner plate.

RECESSION AND OTHER TRICKS
One clear spinoff from the PIIGS disaster in Europe is that the continent's oil consumption has fallen about 10% since 2008, from 15.4 million barrels/day to 14 Mbd today. One thing we can be sure of is that financial disaster and 23% unemployment rates, as in Spain really do save oil, but the near certain trend for OECD Europe's oil demand is now upwards, literally through the energy economics of "scraping the barrel".

Not suprisingly and to date, political treatment on using recession to cut oil demand is to avoid saying it. The politically correct oil-saving list features green energy and smaller cars, weatherizing homes, eating organic foods, recycling metals, plastics, cans and bottles, using bicycles and public transport, worrying about CO2 and other small ticket items usually with low staying power and usually with low real world oil saving potential.

This in no way changes reality: the real cause of oil saving, in those countries which are saving oil, is recession and mass unemployment.

Also off the menu, nuclear power has sunk as the political elite choice for saving oil - without it ever being explained how exactly electricity can save oil, in countries that gave up oil-fired power production 25 years ago. Real world evidence in fact shows that countries which raise the role of nuclear electricity as a share of their total energy, tend to use more oil than countries which dont, by processes that are complex but one-way in their final effect.

Using less oil can also be through a process of national elan and feel-good politics, although of low staying power. First a national emergency is needed, and oil has to be defined as a part of the emergency or even its cause. Under emergency conditions, all things are possible such as 3-day work weeks and car sharing, the clear identification of oil-intense goods and services and public avoidance of them, the purchase of national and local-produced goods, and so on. Higher pump prices which are the symbol of Oil Crisis, to be sure, are welcome to Big Energy and bring more taxes into Big Government coffers.

Possibly the last-but-not-least tactic, also calling on national solidarity, is to declare war against one or more carefully selected, larger-sized oil exporter countries with smaller-sized armies, then invade and occupy them. This gung-ho 19th century type colonial solution is, perhaps surprisingly, still in use today but with highly negative real world results. In particular, invaded nations tend to fight back, and repressing local resistance forces costs money - and also needs a lot of oil.

Sooner or later therefore - under current Peak Oil conditions that is sooner - coherent and real strategies and policies for oil saving have to see the light of day and have to be explained for what they are.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

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