Thursday, January 13, 2011

The Shorter PIA – Australian Oil Vulnerability

In a previous post I pointed to the special edition of the journal Australian Planner on Peak Oil (Vol 47 No 4) from the Planning Institute of Australia. Starting with this post I will give a brief cut and paste overview of some of the papers, hopefully capturing the flavour and important points of each paper. Much of the information is familiar to followers of energy issues, especially the backgrounds given at the start of the papers. Ellipsis (...) indicates deleted text and square braces [ ] indicates inserted text. Some references have been omitted.

Dark clouds on the urban horizon: petroleum and Australian planning
Jago Dodson, pages: 226-231.

Rapid urbanisation, population growth, infrastructure and resource demands all place pressure on urban systems. A major strategic challenge for urban regions especially among developed nations ...  is the vulnerability of cities to the systemic and particular effects of future constraint on global petroleum supplies.

The years [since oil began its upward climb in the early 2000s] have witnessed extreme volatility in petroleum markets with prices rising to beyond US$100 by late 2007 to a peak of US$140 per barrel by late-2008. Oil prices then slipped back to US$30 in early 2009 with the onset of the global financial crisis, but by mid 2010 had returned to their pre-crisis levels of approximately US$80 per barrel.

It seems unlikely that the world will return to the low and stable price patterns seen from the late-1980s to the mid-2000s.

A commonly cited causal factor underpinning recent high oil prices was the global economic expansion over the decade to 2009 intersecting static or only gradually increasing oil production. China’s economy, for example, has grown by at least 8.3% per year in GDP terms since 2000 (IMF, 2010).

The investment task [for the production, exploration, improving technology and protection of oil supplies] is monumental. The International Energy Agency (IEA, 2008, 39) projects that US$26 trillion worth of production investment is needed by 2030 to meet anticipated global oil demand.

As other reserves decline, the share of global oil production provided by members of the Organisation of Petroleum Exporting Countries (OPEC) dominated by Middle Eastern nations is expected to increase from 44% in 2008 to 52% by 2030, giving this grouping considerable influence on global supplies. Some 28% of global oil supply in 2030 is projected to come from just six Middle Eastern OPEC countries: Iran, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates.

Probably the most significant and imperative business statement on the problem of petroleum security, peak oil and wider energy constraints came from the Lloyds insurance group in June 2010. Lloyds is, according to the company’s website ‘the world’s leading insurance market’ which ‘is often the first to insure new, unusual or complex risks’. The company’s white paper on sustainable energy stated:

Companies which are able to plan for and take advantage of this new energy reality will increase both their resilience and competitiveness. Failure to do so could lead to expensive and potentially catastrophic consequences . . . An oil supply crunch in the medium term is likely to be due to a combination of insufficient investment in upstream oil and efficiency over the last two decades and rebounding demand following the global recession. This would create a price spike prompting drastic national measures to cut oil dependency.

Perhaps the most substantive, if opaque, signal that petroleum security is now a major international governmental concern is the realigning of political and institutional relations between producing and consuming nations. Thus, the most recent International Energy Forum meeting in early-2010 gathering together 68 national energy ministers  including Australia’s  sought to establish a formal global venue for ‘consumer producer dialogue’ focusing on measures to mitigate energy market volatility, and the security implications of this problem.

Australia’s planning challenge

Australia is the greatest per-capita energy consumer in the OECD (Garnaut, 2008). Australia possesses huge energy resources in coal and gas but only modest petroleum reserves, holding just 0.3%of the world’s oil. Australian oil production peaked in 2000 and now satisfies only two thirds of domestic consumption; this is probably misleading as there is a strong divergence between the types of oil Australia can produce and the types it consumes. This mismatch has already generated a $9.3 billion trade deficit in 2008/2009, which is anticipated to hit $25 billion by 2015.

The transport sector accounts for more than 70% of national petroleum consumption (DRET, 2008) with 97% of Australian transport powered by petroleum fuels. Road vehicles accounted for 75% of Australian transport fuel consumption and passenger vehicles comprise 62% of this total (Syed et al., 2007).

Such deficits will worsen if some of the projections of motor vehicle use in Australian cities are realised. Motor vehicle kilometres travelled in South East Queensland, for example, are predicted to increase some 48% by 2026 (Office of Urban Management, 2005). Without dramatic and unlikely (Dodson et al., 2009) gains in fuel efficiency, such growth will add to the petroleum reliance of the Australian transport sector.

Petroleum depletion scenarios for Australian cities
Wally Wighta and Peter Newman, pages: 226-231

Peak oil is a contested issue. When a barrel of oil reached $140 in mid 2008, the world began to remember those who had been predicting a global peak for over 30 years, since the first oil shocks began in the 1970s.

The world of cheap oil appears to be over. This is a serious discontinuity from previous city and regional economic development eras, which were based around cheap fuel for transport.

There will be different impacts depending on the level of vulnerability to oil in different cities and within cities. On a global scale, the differences between cities in their oil consumption per capita are huge. Kenworthy and Laube (2001) have collected data on 84 cities, comparing the amount of transport fuel per capita. Australian cities are twice as vulnerable as most European cities. In cases such as Barcelona, Singapore, Hong Kong and Tokyo (which are all around the same or at higher income levels than Australian cities) they are four to five times less vulnerable to transport fuel issues related to peak oil.

The City of Sydney uses one tenth of the transport fuel used by outer suburbs in Sydney on a per capita basis.

Dodson and Sipe (2005; Dodson and Sipe, 2006) examined each Australian city in terms of vulnerability to oil price increases and the ability to repay mortgages.  [D]one before the global financial crisis (GFC), they found that the car-dependent residents of outer suburbs that are poorly serviced by public transport are highly vulnerable to the combination of high fuel prices and mortgage debt.

Some likely peak oil ‘events’

(1) Sudden critical supply interruption

This event could be triggered by a sudden major loss of production in a major field (e.g. cyclone Katrina, act of war or terrorism) or a similar natural or socio-political event affecting refining or distribution further downstream in the supply chain. The impact of such a disruption will be dependent on the extent and duration of the interruption. For the purposes of this exercise, it is assumed such interruption would seriously disrupt continuity of supply for a period exceeding one month.

(2) Volatile price fluctuations and/or intermittent supply disruptions

This event would be triggered by tensions in the supply/demand equation, causing sharp increases in the global price of oil. This phenomenon is highly sensitive to (and, in turn, exerts a significant influence on) underlying global economic conditions.

(3) Progressive price rises and diminution of supply

This event is a natural flow-on from the passing of the global peak of oil productionand reflects increasing discrepancy between the diminishing capacity of global oil supply and burgeoning underlying global demand.

The influence of the temporary price collapse during the GFC had the effect of deterring investment in ‘unconventional’ oil such as deep sea oil and some alternatives, such as tar sands and shale oils (IEA, 2009). Thus, as conventional oil has peaked, there is a growing concern about reliability of supply, with overall decline currently running between 3% and 6% per year.

Thus ‘event 3’ is more than likely; it may be inevitable.

In order to illustrate and evaluate the risks of peak oil, we examine the risk profile associated with three theoretical comparative land use response scenarios for urban development.

Ruralised sprawl [see picture]
This option is the most consistent with the present fringe development process whereby the majority of development is in greenfields subdivisions. This scenario is one that is favoured by a substantial group of people addressing peak oil who see that the basic agricultural system, which is largely based on oil, is likely to experience significant problems. The large blocks and open space ... is therefore seen as being a resource to enable intensive urban agriculture to flourish. [W]aste ... is treated and recycled back into the food production system.

The problem with this model is that it occupies very large land areas (effectively suburbanising the whole fringe area very quickly) and it does not address the transport issues of the area.  [I]t is not viable for public transport, walking and cycling to major urban services such as major employment centres, schools, shopping, and other services. The development remains very car dependent. Thus, under most peak oil events, the economy of such areas remains extremely vulnerable. This happened in the United States when the oil price reached $140/bb and whole areas of ruralised settlements were abandoned.

As discussed in Resilient Cities (Newman et al., 2009), even in Havana, which implemented a strong urban agriculture program after the sudden disruption due to oil supply after the fall of the Soviet Union in 1989, the city remains largely non-agricultural in jobs, services and economy, despite being 40% self sufficient in food. Havana remains a city that is largely non car-dependent. This is its main strategy that enables it to survive in a world of oil constraints.

Centralised concentration
The opposite of the first option would be to direct all new development into high density housing around
the CBD. This would need to reclaim relatively underutilised areas near to the city and would at least duplicate the number of high rise buildings that are presently in most CBDs. The advantages of this option are that it would more effectively utilise much of the infrastructure presently available in the area ... hence
it would save considerably on oil consumption and costs.

The disadvantage is that the area would be so intensively developed it would not enable the city to assist those already living in outer suburbs, which are the most vulnerable areas of the city. [It] would also not facilitate
the deployment of emerging decentralised green technologies such as photovoltaics, localised water
and waste systems, [which] tend to work best distributed across small dense urban centres. [I]t is probable that any Australian city basing its future solely on high-rise buildings is likely to experience political resistance and may not ... fully adapt to a resilient post-oil city form as envisioned by many commentators.

Decentralised concentration
The third option would enable the city to develop along corridors of highly efficient transit in the form of medium density centres. The localised access to goods, services and employment would result in a halving in the proportion of car use by people living in the area as they are able to use public transport much more as well as having options in walking and cycling. The centres themselves develop in the nature of small cities in
the suburbs and will become activity nodes for the adapted public transport system to focus on.

[I]ncorporating new green technology...seem[s] to work best when distributed into a series of decentralised centres rather than just one centre or, the worst of all, scattered and fragmented land uses.

This paper then develops a risk liklihood and effect table as an analysis guide.

The risk analysis shows that ‘ruralised sprawl’ is at an extreme risk level from a sudden oil supply disruption, as it is so car dependent, and is at high risk from volatile and progressive price rises.

[The] preferred scenario would be a further enhancement of the ‘Decentralised concentration’ which, in planning terms, is called the Polycentric City.

Economic implications
The response to any change in Australian cities is usually that it will cost more and hence will be difficult. The need to respond to peak oil is, however, becoming an economic imperative.

The paper presents a largish table estimating the difference in cost (per dwelling)  between the preferred option (Decentralised Concentration) and Ruralised Sprawl. The bottom line:

Decentralised concentration   Ruralised sprawl
$308,702 $687,316


Australian cities are vulnerable to peak oil. For that reason alone we should be showing global leadership on this issue. There are real risks that need to be assessed in all land development issues. A creative and positive response to the challenges posed by peak oil will therefore help to achieve a range of other urban objectives and yield a better and more resilient urban outcome.

For some definitions try:


Transition Towns said...

Thnks SP. Great summary of an issue that is often lost on the masses, who typically cannot think in temporal spans of more than a few months at a time.

The paper raises the problems, and the solutions seem to be obvious. The hard part is overcoming the inertia in the property development sector which is huge and is peopled by a cadre of self interest, get rich quick scammers and big egos that are going to find it hard to change direction.

Personally I agree with Kunstler that it is probably too late for the urban deveklopment machine to change direction and get it right.
Large amounst of credit are leaving the system and this is taking out lots of property developers who even if they do now get it, cannot act on it through lack of capital.

Personally I think the approaching global depression will destroy the prospects of good urban design emerging on greenfield sites and that a new urban development industry will spring up that is basically about adpating in place and a lot of ad-hoc development won't even be submitted for approval.

SP said...

Inertia is the watchword of the present interlude.
My move from doomer nihilism (see about page) to neutral-hopeful came about after my initial thoughts & fears of imminent collapse failed to materialize. Inertia. It can take a long time for change.

Where I am now (Indonesia) "and a lot of ad-hoc development won't even be submitted for approval." is nearly the norm. OR a strategic "gift" amounts to the same thing.

I hope to do some posts about this city. I think it might be instructive I kind of dystopic vision of the past and future at the same time?

When did the transition towns Albury-Wodonga group start?
I used to live in Albury for a while.

The "masses" will come on board but only when its obvious that the gig is up - and then we will be the masses. I'm trying to take a leaf out of the communication style of Kurt Cobb.... avoid predictions and don't isolate.

Thanks for reading and thanks for your comments.

Cretaceous said...

Nice summary Gav!

Hi from Cretaceous.

What we saw in 2008 was a breath-takingly fast local impact of rising petrol costs on property prices in the outer fringe.

Anybody buying a house that is a long commute from work will have an implicit cost model that adds fuel costs to mortgage costs in order to fit within the cap of their total income. In Australia we have long lived with the idea that one's house costs "what you can afford to pay off over your whole life" - that is the present value of all one's future mortgage payments. If the present value of future fuel purchases suddenly jumps by say $200K, then this amount comes straight off property prices immediately - leaving people in "negative equity" where the disposal value of their house is substantially less than the loan that secures it. Given that our banks tend to be quick to foreclose in such circumstances, I forsee a potential run-away effect where rising petrol prices lead to a sudden crash in our property market and also a considerable weakening of the financial strength of all our major banks (all heavily skewed towards household mortgage business.)

Big Gav said...

Hey Cretaceous - good to see you back in the comments.

Note the article was by SP, not by me :-)