Even with new discoveries, increasing domestic demand means Australia will need to import more and more of its oil over time, writes Josh Gordon.
In 1956, a notoriously short-tempered geophysicist named M. King Hubbert used principles from geology, physics and mathematics to predict that global oil production would peak in the early 1970s.
[ Ed’s note: M. King Hubbert predicted in 1956 that continental US oil production – not global oil production – would peak in the late 60s or early 1970s. Hubbert was right, US continental oil production peaked in 1970/71. – AF ]
His warning was scoffed at. Then came the 1973 oil crisis and “stagflation”, a dreaded combination of rampant inflation and stagnant growth. The world economy was brought to its knees, and Hubbert gained a little credibility.
Hubbert revised his work in 1982, guessing that the world had about 2.1 trillion barrels of extractable oil left, leading to the conclusion that global production would peak around 2003 or 2004.
Hubbert’s 1982 estimate was subsequently brought into question when a number of members of the Organisation of Petroleum Exporting Countries announced big upgrades to their estimated reserves in the late 1980s.
However, with crude prices now nudging $US50 a barrel, there are signs OPEC may not be able to pump much faster – while voracious demand from energy-hungry nations like China, India and the US continues to skyrocket.
Some analysts are now asking questions about whether global reserves are really as big as oil producers say they are. Could Hubbert have predicted, with chilling accuracy, the end of cheap oil?
Analysts are still deeply divided over where prices are heading. The question of whether “Hubbert’s Peak” has been reached could remain unanswered for some time. What is clear, however, is that Australia is becoming increasingly dependent on oil imports.
According to the Australian Petroleum Production and Exploration Association, on current trends, in 10 years Australia will be producing about 230,000 barrels of petroleum liquids per day, while consuming around 1,030,000 barrels.
That would leave us 78 per cent dependent on oil imports, compared with our current 30 per cent dependence.
On the optimistic assumption that prices fall back to $US30 a barrel, Australia’s daily oil import bill would be about $US24 million ($A34.4 million), or $US76.4 billion over 10 years.
APPEA’s executive director, Barry Jones, warns that the economic ramifications of a do-nothing approach by government could be massive.
“The impact on the economy and the budget, even if there was no supply disruption, would be significant,” Mr Jones said. “If a major, sustained disruption was to occur, in a decade the social and economic costs could be huge.”
The Coalition’s energy blueprint, released in June, concluded Australia would be dependent on fossil fuels for decades, but it failed to seriously consider the prospect that oil may not be so readily available in the future.
With motorists paying up to $1.10 a litre at the pump, concern levels may now be rising.
Federal Resources Minister Ian Macfarlane has ordered a review of the Liquid Fuel Emergency Act to ensure Australia can handle a shortage of oil. One option under consideration is the creation of a new stockpile of crude or refined petroleum.
Interest in the idea was reinvigorated after the US Government earlier this year announced plans to restock its 666.5 million barrel Strategic Petroleum Reserve.
Back-of-the-envelope calculations suggest that a stockpile one-thirtieth the size of the US would cost Australia about $1.2 billion (assuming an oil price of $US40 a barrel), providing enough oil to last just four weeks. The oil industry is urging the Government to provide more cash to encourage more speculative offshore exploration.
But even if Australia finds more oil, it is unlikely to halt the rising dependency on oil imports.
Mr Jones said governments also needed a long-term alternative fuel strategy, probably focusing on gas-to-liquids technology, bio-fuels, coal gasification or hydrogen as well as measures to encourage consumers to switch from oil to natural gas or renewable energy, and better transport policies.
Labor’s approach is to make LNG a priority by bringing more of Australia’s offshore reserves onshore and developing an industry to convert it into transport fuel.
“Australia is consuming oil three times faster than it is finding it,” Labor’s energy spokesman, Joel Fitzgibbon, warns. “As a nation, we are fast approaching 60 per cent oil import dependency.”
