The best hope for energy security

The Green=Malthusian case restated from a neoclassical/'market' economics perspective.  No this doesn't imply that it's an intrinsically 'right-wing' argument, just that even bourgeois analysts can see the connection when their brief is to worry about medium to long-term material conditions rather than simply cheerleading for 'ethical' antipolitics.The best hope for energy security

By Martin Wolf

Published: July 4 2006 19:18 | Last updated: July 4 2006 19:18

Repent, for the end of the world is nigh. This is an element in many religious beliefs. Thomas Malthus, the early 19th century forefather of environmental doomsayers, brought it into the modern era with his remark that: “The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race.” Malthus was wrong: the world’s population has risen six-fold since his day, while life expectancy has doubled. So will contemporary Malthusians prove right about energy?

The answer is: no. Moreover, without extraordinary action, the future lies with oil, gas and, above all, “old king coal”, the fuel with which the industrial revolution began. This must concern another group of Malthusians – those concerned with global warming. That, however, is a subject for next week. The theme of today is how humanity might meet its demand for commercial energy. A recent survey from the Organisation for Economic Co-operation and Development suggests that demand for commercial energy might double by 2050.* If anything, this is a conservative assumption. If global demand per head were to reach today’s UK levels, the quantity consumed would rise almost four-fold.

Now consider whence – and at what prices – this additional energy might come. In 2003 the breakdown of primary commercial energy worldwide was: oil 35.4 per cent, natural gas 23.7 per cent and liquid products from gas 2.7 per cent, coal 23.9 per cent, hydro-electricity 6.5 per cent, nuclear electricity 6.4 per cent and renewables 1.4 per cent. Taken together, fossil fuels now provide 86 per cent of the world’s commercial energy.

Is the world about to run out of these fuels? “No” is the answer or at least not in the next half century and almost certainly far longer (see chart).

Published oil reserves do, it is true, cover only about 40 years of current consumption. If consumption rises, as seems inevitable, that does not seem to provide much of a cushion. Moreover, believers in the theory of “peak oil” argue that the world has already reached peak production. “Peakists” are doomsayers, declaiming, to quote the title of one book, The Party’s Over.** Their analysis is based on estimates of total recoverable oil generated from the pattern of discovery. Peakists argue that the world has used up about half the available supply and global production is in irreversible decline.

Against this, most analysts argue that reserves tell one little about available supplies, that higher prices and innovation generate greater extraction from existing fields, that discovery of new (if smaller) fields is continuing and, most important, that unconventional oil resources are still to be exploited (see chart). So even if production of conventional oil were to peak, the oil era would not be over. The question is rather one of price. The potential at a price of $70 a barrel seems huge. Many argue that the price needed to bring forward additional supply is much lower.

Nor does the end of oil mean the end of fossil fuels. Gas and, above all, coal are even more plentiful. Some would counter that petroleum is a unique source of high quality energy for transportation (which itself accounts for one-fifth of commercial energy use). But it is possible to convert coal and natural gas into “syngas” (synthesis gas) and then into liquid fuels. The question is one of cost. The answer is that this would be more expensive than conventional oil, but not prohibitively so.

What role then might be played by nuclear and renewables in such a “business as usual” scenario? “Marginal” seems to be the answer. The big points are that renewable energy is expensive, nuclear energy is controversial and overall demand is set to grow substantially. Suppose global energy demand were indeed to double by mid-century. Assume, too, that consumption of energy from fossil fuels and hydro- and nuclear electricity were to remain constant. Then the energy output from renewables must grow 70 times. This will not “just happen”. It will take enormous effort by governments.

Renewables have problems of usability, scalability or cost (see chart). To generate half of all current energy consumption we would need 100m windmills (even if their output were sufficiently reliable). Use of large proportions of the earth’s surface for bio-mass runs into the constraints imposed by alternative uses (food production and natural habitat). In principle, solar energy should be more than adequate: the quantity falling on the earth’s surface is more than 6,000 times current commercial energy consumption. The hurdle is the difficulty and cost of collecting solar energy. Today, as a result, solar power’s contribution is 0.04 per cent of commercial energy supplies (though, evidently, it is the source of almost all energy consumed by life).

Does this scenario – of a world in which fossil fuels generate the bulk of commercial energy over the next half century – generate worrying security problems? If one focuses on oil or gas alone, the answer might be yes. In both these cases, the reserves are not located where most of the consumption takes place. The gap is particularly large for conventional oil: three-fifths of known reserves are in the Middle East. Most gas is piped, which creates an inflexible system. But coal is widely distributed, with much of it in the large consuming regions. The best solutions then for governments concerned with security are diversity of sources and open and flexible world markets. Attempts by any power to seize valuable resources for exclusive use would create serious global insecurity and even war. Such attempts have done so before.

Remember that this argument ignores the question of climate change. It asks whether the Malthusians who argue that the world will soon run out of fossil fuels allow the Malthusians who worry about the damage to the atmosphere to cheer up. The answer is an unambiguous no. It will be perfectly possible to run a fossil fuel economy for many decades at prices that are likely to be substantially lower than those of recent times. Even if they remain at current levels, the world economy will almost certainly cope, as its recent performance suggests. The world can afford quite expensive energy. The big question is, instead, whether the environment on which our lives depend can cope with the results.

* Richard Doornbosch and Simon Upton, “Do we have the Right R&D Priorities and Programmes to Support the Energy Technologies of the Future?” www.oecd.org/sd-roundtable; ** Richard Heinberg, Clairview, 2003

martin.wolf@ft.com