The Era of Cheap Oil is over: what’s next?

Considering that 61% of global CO2 emissions come from energy related sources, the future shape of the energy system, as it is being developed and driven by policy makers and public demand patterns will be of utmost importance. The World Energy Outlook** is an IEA (International Energy Agency) /OECD (Organization of Economic Co-operation and Development) yearly publication and it can help us better understand the issue.

In its 2008 edition the realization of the need for an international climate change agreement and the take-off of a new low-carbon economy are deemed to be urgent and possible. The figures in the report show that, if current trends continue until 2030, there will be a 45% energy demand increase with ¾ of energy consumed in cities (2/3 today). Coal share will rise to 29% (+3%, mainly from Chinese and Indian power sector) and the role of the Middle East will still be strong in satisfying the world’s energy demands (OPEC countries will provide 51% of the oil needed vs current 44%). There will be an increasing dominance of national companies facing international oil companies on the market, but the transfer of knowledge from major and national companies could be very advantageous. In my view, a world with more cooperation and less competition is what we need, despite the fact that many, if not all, political leaders seem to be promising to build a more competitive countries. It seems to me that establishing a stronger network of peaceful partnerships between all nations to build a more united world is a better idea.

Oil reserves estimates are as much as 1,2-1,3 trillion barrels, thought to be enough for over 40 years at the current rate of consumption and the long term potentially recoverable oil-resource base is as large as 5 times this amount. It seems that, potentially, oil could still provide us with a lot of energy for a lot of time, but there are alternatives to this very expensive and polluting fossil-fuel system that can be tapped into with immediate effect. There are, of course, obstacles on our way to cleaner energy, like the inertia of energy sector represented by the fact that many power plants operating now will work in 2020 and 2030 with long-term capital investments: in the 2008 World Energy Outlook we can read that “even if all new ones were built CO2 free from now on the emission cuts would not be more than 25%”. The alternative hypothetical scenarios are relative to a CO2 stabilization at 550 ppm or a more stringent at 450 ppm. The latter implies an unprecedented technological shift with much higher investments and the assumption that technologies not proven yet will actually succeed in shaping a new energy future.

What is the price of such an ambitious scenario? There will be initial higher costs to the public, with the view of long-term savings in the energy bills. With less than 1% of the GDP very important changes can be made so it’s everyone’s responsibility to put some change in our planet’s money box.

Written by Luca Marazzi on behalf of Responding to Climate Change

*This widely acknowledged conclusion appears also in the Executive Summary of the 2008 World Energy Outlook.
**The executive summary can be downloaded and the full report can be ordered at www.worldenergyoutlook.org

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