Changing the Oil Economy

State of the World Worldwatch Institute

The Oil Economy

• Strategic commodity• Economic security• Civil security

• Climate security• Alternatives

Courtesy Elmendorf AFB

The Oil Age fueled the 20th CenturyHow does it affect global security?

Oil in Modern Life

• Cars and power plants• Personal care products,

cosmetics and drugs• CDs, cell phones, radios,

cameras, TVs• Clothing, sports, household

furnishings

• Food production and transport

How wide spread is our oil-based culture?

A Strategic Commodity

• Oil is central to modern civilization• It is the world’s largest source of energy

• Oil has changed from an asset to a liability• Oil is key to manufacturing, feedstock and energy

and there are no ready substitutes

• Oil dominates world energy budgets• Per capita and total energy consumption

skyrocketed once fossil fuels became widely available

From Wood to Oil

0

5

10

15

20

25

30

35

40

1630 1680 1730 1780 1830 1880 1930 1980 2030

U.S. Consumption, 1630-2000

Quadrillion Btu

Source: DOE

Petroleum

Natural Gas

Nuclear Electric Power

Hydroelectric Power

Coal

Wood

Consumption

World Oil Consumption, 1950-2004

Source: BP

010203040

5060708090

1950 1960 1970 1980 1990 2000 2010

Mill

ion

Bar

rels

China• China exported oil in the early 90’s• Today, it is the world’s second largest importer

0

1

2

3

4

5

6

7

1970 1980 1990 2000

Mil

lio

n B

arre

ls/D

ay

Production

Consumption

Source: DOE

Consumption

• Global consumption of useful energy per person is about 13 times higher than in pre-industrial times

• Per capita consumption is much higher in industrial than developing nations

• Consumption has risen despite increasing pollution, emissions and other problems

© USDA

Transportation

– The world’s automobile fleet grew from 53 million in 1950 to 539 million in 2003

– China, with an expanding economy, now has 20 million cars and trucks and by 2020 is projected to have a fleet of 120 million

Automobiles

Digital Vision

Oil accounts for nearly all transportation energy use

Transportation

Air travel has increased dramatically since jets were introduced

– 1950: 28 billion passenger-km

– 2002: 2,942 billion passenger-km

Air Travel

© NASA

Supply

• Conventional view--production will keep rising

– IEA projects production will reach 121 million barrels per day

– Sufficient oil reserves exist and new technologies will aid in better extraction

© DOE

A Finite Resource

• Dissident view--production will begin to decline by 2007– Gap between supply and demand will continue to grow– New technologies will only accelerate rate of depletion

– Production has outrun discovery for past three decades

© Getty Images

Discoveries

World oil discoveries are lagging far behind production

0

10

20

30

40

50

60

1920 1940 1960 1980 2000 2020

Discoveries

Production

Bill

ion

Bar

rels

Production & Resources

Bill

ion

Bar

rels

Source: DOD, DOE

0

5

10

15

20

25

30

1500 1700 1900 2100 2300 2500

Historical Production

Estimated Resources

According to many geologists, resource constraints may soon limit world oil production

Falling Production

– 6 of OPEC’s 11 members– United Kingdom– Indonesia– Norway– Mexico– Venezuela

© Getty Images

Production has reached a plateau or declined in 33 of the 48 largest producers, including:

0

2

4

6

8

10

12

14

1950 1960 1970 1980 1990 2000 2010

Mill

ion

Bar

rels

Oil Production

United States

Former Soviet Union

Saudi Arabia

Production Per Day

Source: BP

0

2

4

6

8

10

1955 1965 1975 1985 1995 2005

U.S. Production

Million Barrels Per Day

Source: DOE

Lower 48 states

Alaska

U.S. oil production peaked in 1971

Dependency

• Industrial nations use most of the world’s oil

• Developing nations– Are more dependent on oil as share of total energy use– Use more in proportion to the size of their economies

– Many import virtually all their oil– Are more vulnerable to price shocks than many

industrial nations

0 10 20 30 40 50 60 70 80

Dependency

Percent of Oil in Energy Budgets

Ecuador

Thailand

Japan

U.S.

France

Paying the PriceD

ollars Per B

arrel

Two decades of stable oil prices have abruptly ended. Is this a temporary anomaly?

Human Cost

Price increases translate into human cost in poor countries

– rising food costs affect diets– cooking fuel becomes less affordable

© FAO© UN

Price and Economic Growth

IEA estimates that if the price per barrel price increase is sustained, it will reduce economic growth throughout the world in 2006

0 1 2 3 4 5 6

Percent Reduction in Economic GrowthU.S.

Europe

India

Indebted countries

1.0

1.6

3.2

5.1

World Oil Trade, 2002

Exports, MBD< 11-22-45-66-9

World Oil Trade, 2020

Exports, MBD< 11-22-45-66-9

8.8

1970 1980 1990 2000 2010 2020

Trillion Ton-Miles

5.6 8.3 6.3 7.1 8.8 12.9

Exporter Dependency

• Exporters rely on a continuous stream of oil revenues because their economies are not diversified

• Oil income is often diverted to enrich elites and to pay for military buildup

© Getty Images

Uncertainty

• Growing demand will increase dependence on supplies from the Middle East

• Oil-producing countries are often politically unstable• True state of reserves in Persian Gulf, particularly

Saudi Arabia, are in question

• Countries such as China and India are entering into oil-intensive development and will intensify competition for oil

• Competition will trigger soaring prices

Oil and Civil Society

• Access to oil has provoked power maneuvering, military interventionism, and alliances of convenience

• Oil resource wealth has tended to support corruption and conflict rather than growth and development

© Lance Cpl. Nathan Alan Heusdens

Oil and Climate

Global consensus that Earth is warming and that deforestation and the burning of fossil fuels are the major causes of climate change

Oil contributes 42% of all emissions of carbon dioxide (CO2) emissions, a greenhouse gas

Digital Vision

Atmospheric concentration of carbon dioxide is now higher than at any time in the last 650,000 years

Greenhouse Gas

Source: Scripps Institute of Oceanography

260

280

300

320

340

360

380

400

1850 1870 1890 1910 1930 1950 1970 1990 2010

Parts Per Million

Greenhouse Gas

Source: IPCC

Past and future CO2 concentration

Climate Change

Scientists project that rising temperatures will:

– melt ice caps and glaciers, raise sea levels, and increase storm severity

– trigger regional droughts and famines

– lead to the spread of diseases like malaria and dengue fever

– affect the growth and harvest of world food crops

Glaciers are already melting

Temperature Changes

The global average temperature is already higher than at any time since the Middle Ages

13.0

13.4

13.8

14.2

14.6

15.0

1860 1880 1900 1920 1940 1960 1980 2000

De

gre

es

Ce

lsiu

s

Source: Goddard Institute for Space Studies (GISS)

Climate Security

– Global increase in poverty– National and regional instability– Tightened food supplies– Conflict over water resources

Environmental effects from climate change threaten human security and the global economy

© UN

© Digital Vision

0

100

200

300

400

1980-84 1985-89 1990-94 1995-99 2000-04

Weather Disasters

The economic cost of weather-related catastrophes

Source: Munich Re

Billion Dollars

Uninsured Losses

Insured Losses

The Tipping Point

We may already be in the early stages of a global energy

transition…One that is as profound as the

advent of the oil age was a century ago.

The Tipping Point

Oil (1905)

Renewable Energy (2005)

Improving Efficiency

Improving automobile fuel economy can make an enormous difference

Gasoline and diesel-electric hybrid cars are twice as efficient as internal combustion engines

Renewable Energy

Wind- and solar- generated electricity are the fastest growing sources of energy in the world

Biomass fuels such as ethanol and biodiesel are proven and competitive with gasoline and diesel

Wind

Wind energy is becoming a major part of the global power industry

Meg

awat

ts

Source: BTM Consult, EWEA, AWEA, Windpower Monthly and New Energy

0

10,000

20,000

30,000

40,000

50,000

60,000

1980 1985 1990 1995 2000 2005

Solar

Solar energy is growing even faster

Meg

awat

ts

0

1000

2000

3000

4000

5000

1980 1985 1990 1995 2000 2005

Source: PV Energy Systems, PV News

Biofuels

• Biofuels are joining the bandwagon M

illi

on

Lit

ers

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

1980 1985 1990 1995 2000 2005

Policy Changes

1) Ensure that energy markets include renewable options

– Enact pricing laws to guarantee fixed minimum prices for electricity

– Require that utilities provide access to grids– Establish quota systems mandating a share for

renewables

Policy Changes

1) Focus on industry standards, permits and building codes

– Ensure quality hardware– Address public concerns

about siting– Design new buildings to

be compatible with renewables

Policy Changes

1) Educate investors and consumers

• Ensure a skilled workforce

• Increase public participation

Choices

World Energy Use

Source: Martinot, BP

0

5

10

15

20

25

30

35O

il

O

ther

Renew

able

s

Nucle

ar

Hydro

Trad

itiona

l

Bio

mas

s

Natur

al

GasCoa

l

% 2004

Choices

0

5

10

15

20

25

30

35

Hydro Oil

Nuclea

r

Win

d

Biofu

els

Gas

Trad

ition

al

B

iom

ass

Coal

Solar

PV

Source: Martinot, BP

World Energy Growth (2002-2004)

Annual Percent Growth Rate

What do you choose?

One path leads to the possible calamitous loss of a prime energy source

The other path leads toward a world of abundant clean energy for more of the world’s people

Worldwatch Institute

Further information and references for the material in this presentation are available in the Worldwatch Institute’s publication “State of the World 2005”

www.worldwatch.org

This presentation is based on a chapter authored by:

Thomas Prugh, Christopher Flavin, and Janet L. Sawin