Tuesday, August 9, 2011

New Zealand Government’s Response to Peak Oil – In time we hope something will turn up

This is a guest post from Denis Tegg.

On July 8 I attended a forum on peak oil organised by the Sustainability Society. Dr Richard Hawke from the Ministry of Economic Development gave a presentation  on behalf of the New Zealand government entitled "Peak Oil - New Zealand's Response". I came away with emotions ranging from frustration to anger and embarrassment.

So I thought it would be cathartic to dissect the presentation --

Dr Hawke began with a typically confusing introductory slide on electricity generation, when anyone with a basic knowledge of peak oil knows that it's a liquid fuel problem, not an electricity issue. We cannot power our cars, trucks ships and planes on electricity.

Next was a cringingly awful attempt to paint peak oil as part of an historical continuum of false prophecies on oil production. Awful because all of the examples used were from the 19th century or early 20th century before the concept of peak oil was understood. Who cares what someone said in 1865? The glaring omission from the examples given was of course the prediction from US Shell geologist Dr King Hubbert. He predicted in the 1950s that US oil production would peak in 1970 -- which it did, and has declined steadily ever since in spite of the best technology, most intensive drilling on the planet and record high prices. Similarly omitted were the projections of Colin Campbell and other peak oilists in the late 1990’s who predicted that global crude oil production would peak around 2005 -- 2006 -- which it also did.

Dr Hawke then attempted to paint peak oil proponents as pessimists who underestimated oil reserves, exaggerated future demand, while not giving enough emphasis to substitution and technological advances -- the archetypal cornucopian view. Firstly, the argument about reserves is a straw man because peak oil is essentially concerned with the flows -- production of oil -- (which have been flat since 2005 despite record high prices and advances in technology) rather than how much oil might or might not be in the ground.

As to exaggerating future demand, surely the government is not seriously suggesting that soaring demand from China, India, Middle East and other developing nations is magically going to decline? Again this is a typically Western-centric view which wrongly transposes the declining oil demand trends in OECD nations like New Zealand to the world as a whole.

The presentation then suggested that technology and alternatives will be the silver bullets that saves us. But the presentation conveniently fails to mention the higher cost, much lower energy return on energy invested and the planet-frying effects of using alternatives such as the tar sands in Canada. The slide actually shows the the extreme and dangerous depths to which drilling must go!

But what really got me wound up was the selective use of the International Energy Agency's information, which the government believes provides “credible information on the global oil market”. On the one hand the government takes as gospel the projections of the IEA that as yet undiscovered fields and unconventional oil will meet demand out to 2035. This selective faith in the IEA is maintained despite -

• the IEA forecasts on oil production having to be revised downward in huge chunks every year for the last six -- eight years
• peak oil scientists having been far more accurate with their production forecasts in the same timeframe
• peak oil experts such as those at Uppsala University providing analysis that shows the IEA’s forecasts for finding undiscovered oil fields are around three times greater than historical norms

But on the other hand the government is quite prepared to ignore other recent IEA announcements - calling for large-scale government intervention - because it does not suit its “the markets will solve everything” ideology . The IEA said in its 2010 Report on NZ that the government should “give priority to enhancing energy efficiency in the transport, commercial buildings and industry sectors by defining clear objectives for the sector supported by adequate cost-effective measures and long-term investments"

The next slide shows the government’s blind faith reliance it has in the IEA's flawed oil price modelling. The slide shows an oil price in 2035 – (24 years from now) at $US135 a barrel under the (worst-case) “existing policy” scenario. Does anyone seriously think the world oil price will be only $US15 higher in 24 years than it is now? Yet the government continues to place faith in IEA price modelling.

The next slides selectively depict various scenarios for future oil production. But only the most optimistic scenarios are shown - a “new policies" scenario and a “green revolution” -- 450 ppm Co2 or 2° of warming" scenario. Post Kyoto there is scant evidence of world governments actually implementing either of these scenarios. So why is the far more pessimistic "current policy" scenario omitted from the presentation?

Domestic policies

This is where the government's so called "response" to peak oil is set out. Four actions to "reduce our dependence on oil" are outlined –

• New Zealand Emissions Trading Scheme
• Encouraging entry of biofuels and electric vehicles to the NZ market
• Investment in public transport infrastructure; and
• The Petroleum Action Plan

I want to concentrate on the government's response on biofuels and electric vehicles and its Petroleum Action Plan, as the ETS and funding for public transport infrastructure have been well canvassed elsewhere.

Biofuels Grant Scheme
Slide 27 brazenly suggests that the government is actively encouraging biofuels and electric car uptake as serious policy initiatives as a response to peak oil. Frankly I found this an insult to the intelligence of the forum audience and the public at large. Why? -- Because these are minuscule and pathetic policy responses. 

Here is the analysis of these 2 policies done by WWF....

“In the first eleven months of operation (July 2009 – May 2010), an average of 44,620 litres of biodiesel were covered by the scheme, which is roughly equivalent to 38 tonnes of fuel. Extrapolating this average over a whole year equates to 456 tonnes per year. Total oil consumption in NZ in 2008 was: 5,737,000 tonnes. At this rate, biodiesel covered by the scheme would comprise 0.008% of total NZ oil consumption.”

Road User Charges Exemption for Light Electric Vehicles
WWF  “The government predicts 127 electric vehicles will obtain the exemption by 2012 when the scheme expires, with combined annual revenue foregone in road user charges over its four year duration is projected to be less than $105,000.”
$105,000 is less than 0.002% of the government’s planned spending on roads

Petroleum Action Plan

The second much touted “response” is the Petroleum Action Plan (PAP) the aim of which is to develop New Zealand's petroleum potential.

In previous posts I have described this policy as "drill and hope" or “hope to drill” Guess what? The government has confirmed that is exactly what it is! There quite unashamedly in slide 29 is the statement --
"in time it is hoped this will improve our net position and reduce our dependence on imported oil".

Let's just repeat that - a major policy plank of the government's response to peak oil is -
"in time" (7 -- 10 years at best before any flows of new oil can be expected, but with the oil crisis unfolding right now)
"it is hoped" (would it help if we all got down on our knees and prayed?) that something will turn up. Yet this is put up as a credible response to peak oil which is already causing higher inflation and substantial and negative impacts on GDP?

Already huge cracks are appearing in the petroleum plan ….

• In late 2010 Exxon pulled out of exploration in the Great South Basin
• despite a record number of wells being drilled offshore of Taranaki, very little new oil has been found in the last two years
• Petrobras is angry with the government that it was confronted with major protest action offshore from East Cape which disrupted its exploration work. The company left early, and who knows whether they will return.
• Grey Wolf has withdrawn its application for offshore drilling in Golden Bay
Not one company has taken up available exploration permits off the coast of Northland.  The government surreptitiously placed this news on the MED website in the past few days with no ministerial press release. When confronted the government said the global financial crisis and the Gulf of Mexico oil spill was to blame. Well hello! Was that not blindingly obvious when the PAP was formulated.? I pointed out these issues in an earlier post .

Yet in spite of these major setbacks in five different much touted offshore oil basins, the government's presentation has the gall to put up this graphic suggesting we will be "saved" by new oil discoveries.

As I pointed out in a post in November last year about this very same graphic -- if you strip away these yet to be discovered oilfields -- you are left with the real world situation of New Zealand oil production having already peaked and declining steeply to zero by 2023.

This was a non-response to peak oil. It was a "let's pretend is not happening" and if it turns out it is happening "let's hope and pray that something will turn up"

Am I my feeling any better having got this off my chest? Well not really -- because there are effective policy responses that the government can make.  But due to its ideological blinkers, they will continue to ignore them.

Labour has yet to announce its energy policy for this year’s election. Whether it too is unprepared to take bold and effective action on peak oil remains to be seen. I expect to be equally disappointed.

Note: Prof Bob Lloyd of Otago University also gave an excellent  presentation on peak oil at the forum which you can view here

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