Tuesday, 29 August 2017 04:47

World Energy Prospects: A Systemic Overview (Part 1)

Petro Kopka, COSA head of research programs

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil,”

Ahmed Zaki Yamani former Minister of Oil and Mineral Resources of Saudi Arabia.

Over the last three years, the international energy market has been going through drastic changes, which turn oil and gas that used to be instruments of political influence and pressure into simple commodities intended for sale or exchange.

These very changes breathed new life into the discussions on the end of the Hydrocarbon Age. Since this is an extremely complex topic, as part of our Global Prospects for Modern World Project, we will try to understand which issues are truly important and which ones have been deliberately introduced from outside to further complicate matters.

This article is the first in a series of publications on this acute issue.

New Realities

Having achieved an almost complete energy independence, the United States of America are now able to pursue their foreign policy without paying too much attention to the situation on the crude hydrocarbons market or the state of affairs in hydrocarbon-producing countries and regions.

The “price-regulating centre” for energy resources has moved from OPEC to the USA. At the same time, the state of affairs is such that there is no need for the USA to increase production substantially. Simply stating such an intention is enough for world prices to react accordingly. This is yet another evidence of the market being far too speculative.

All of a sudden, the world is facing a paradox where countries that have traditionally been producing oil and natural gas must follow in the wake of Washington’s energy policy.

The USA will undoubtedly need time to get used to its new role as an energy exporter, include this new economic and global reality in the American foreign policy doctrine, and learn to use this leverage effectively in bilateral and multilateral relations.

Experience shows, however, that the Americans have already been using the new opportunities quite successfully.

At the same time, we may safely assume that “shale technologies” are a temporary measure of sorts while the world is moving on to new energy sources and leaving hydrocarbons behind. It is irrelevant whether the Americans are aware of this.

Such an assumption is based on two observations at least. Firstly, hydraulic fracturing used in shale gas production is not safe for the environment. The Americans must understand this. Nevertheless, commercial production is permitted and carried out, which can mean only one thing, that this technology is temporary.

Obviously, the Russians fell for the trick, believing shale technologies were an American bluff of sorts.

Secondly, commercial production of “shale” hydrocarbons started when American economy was doing quite well. The US could have continued to use only traditional energy sources they have been using until 2013. Nevertheless, they opted for “shale” hydrocarbons. This decision can hardly be explained by a simple desire to “punish” Russia.

On a final note, American hydrocarbons are not enough to put significant pressure on the traditional producers of oil and gas, but they are sufficient to adjust the situation on the market without making the prices plummet and causing global energy collapse. This is exactly the situation we are currently observing. Therefore, it is reasonable to assume that the “shale revolution” is merely a prelude to a fundamental change we will see in due course.

What Will the End of the Hydrocarbon Age Look Like?

Ahmed Zaki Yamani made the statement we quoted at the beginning of our article back in the 1970s, when the global energy crisis that had arisen in the wake of the Arab-Israeli conflict led to a jump in oil prices. In hindsight, Yamani’s words sound like both a warning to producers and a prophecy for the world.

Over forty years have passed since then. Prices have risen several times (the last one being the most painful) affecting world economy and a number of major conflicts has occurred making the situation in the Middle East permanently explosive. All this, together with the recent technological advancements, made the development of alternative energy sources a very practical and urgent issue.

Humanity needs the Hydrocarbon Age to end for objective reasons. Most experts agree that human civilization cannot make considerable progress while there is a comfortable safety cushion of fossil fuels without any alternative.

Currently, fossil fuels are the focal point of the world’s industries from the aerospace sector to perfume production. It makes oil and gas both strategic raw materials, which are being fought over and used for bribes, and instruments of corruption on a global scale. Whole countries lose their sovereignty because their political elites are corrupted by oil and gas dollars.

This results in a situation where oil and gas producing countries are no longer simple traders of fossil fuels that were lucky enough to have such resources present on their territory, but prominent players trying to lay down their rules on an international scale.

Meanwhile, they are turning into an insurmountable obstacle for global progress, slowing it down because they are afraid of losing their influence in the world.

At the same time, no one except oil-producing companies and countries claims that hydrocarbons are definitely non-renewable energy resources.

First predictions of the world running out of oil and coal in 30-50 years appeared in 1912. Sixty years later, in 1972, the Club of Rome published a report called The Limits to Growth, which caused quite a stir on the global arena. Using mathematical modelling, the report predicted that energy resources would be completely depleted in 50 years. This deadline comes in five years, but hydrocarbons show no signs of running out.

It sounds strange, but we still do not know for certain where oil comes from, how its deposits are formed, and what influences its amount on Earth.

Theories claiming that oil was formed after the ancient reptiles went extinct do not stand up to scrutiny. Although according to modern archaeologists the age of the dinosaurs lasted for several hundred million years, it is highly unlikely that there were enough dinosaur carcases to produce such great quantities of hydrocarbons all over the planet. This is the reason why some experts conclude that oil deposits are renewable.

This theory is supported by the observations of American geologists at closed unpromising wells in Texas as well as the situation in old oilfields in Western Ukraine, for instance, near Boryslav in Lviv Oblast.

If this is indeed the case, then the Hydrocarbon Age will not end because the world’s oil and gas deposits will be utterly depleted, as many experts believe, but because human civilization will abandon the “golden calf” of oil easily generating huge profits, and move on to new economy models based on technologies other than those using hydrocarbons.

Even the most ardent defenders of traditional energy sources, including fossil fuel producers, cannot help but acknowledge this obvious fact.

What Next?

What will happen next? How will it happen? It is highly likely that we shall soon see breakthroughs happen all at once in a number of areas related to future energy sources like electric propulsion in automobile manufacture, hydrogen cells and low-energy cold fusion in the public utilities sector, as well as solar and wind energy.

Further down the road, humanity will likely start extracting Helium-3 on the Moon, which will not only give us an inexhaustible source of energy, but will also make space exploration economically feasible.

The success of Helium-3 extraction enterprise will depend on the cost and quality of the logistics. First steps towards creating a system of transportation for the lunar energy source have already been taken. Elon Musk’s SpaceX has been experimenting with a reusable first stage and carrying out successful practical tests. The second component of this process is the company’s effort to build a launch vehicle with a payload capability of 40 tonnes and a reusable spacecraft called Dragon intended for a crew of seven.

Although this project may look like something out of a science-fiction film, we should not forget that former President of the United States John Kennedy announced the start of the Apollo programme in 1961 and 8 years later, in 1969, the first humans successfully landed on the Moon. In light of this accomplishment, the current SpaceX does not seem all that fantastical.

Furthermore, the Americans already have the necessary technology, human resources, and experience to bring this project to fruition. The task is made easier by the fact that the space programme is being developed by a private company, not by the government, which makes the rivalry with oil companies a purely commercial competition, completely removing the political component (nothing personal, just business).

Other countries importing energy products will probably continue to develop and/or actively implement alternative energy sources.

Thus, in the mid-run, humanity is likely to witness drastic changes in the energy sector, while in the near future we will see prices fluctuating to an off-kilter rhythm on the international hydrocarbons market with various experts constantly predicting that oil prices will soon rise again.

In turn, oil-producing countries will fall into two categories, those who are ready to diversify their economies and those who suffer from the Dutch disease and are unable to transform their energy sectors. We can already observe this effect as exemplified by the Gulf States.

In Lieu of a Conclusion

Naturally, claiming that the Hydrocarbon Age will end soon and irrevocably would be irresponsible to say the least. Even if new energy sources become a truly formidable rival, crude hydrocarbons will remain prevalent in some areas and sectors of the global economy, but they will no longer be the primary instrument of influencing the global political and technological processes.

There is all the more reason for this as the last few years have shown us that human civilization becomes extremely vulnerable when it puts its fate in the hands of oil-producing countries. Given the specifics of oil extraction business, petrodollars are becoming an increasingly speculative capital instead of the production one, because they are used not do make business more efficient, but to increase its extensive capabilities and keep the world’s production within the confines of traditional technologies that use hydrocarbons as energy source.

Therefore, humanity’s short-term goal should be to go cold turkey on hydrocarbons and start prioritising innovative technologies and industries that must replace the old-fashioned ones we continue to use today. This is an objective imperative of our times, not yet another whim of the movers and shakers of our world.

Most importantly, the latest technologies of the sixth and further generations should be able to provide people with everything they need anywhere in the world. Such a transition is only possible if we stop viewing oil and gas as criteria of success and consequence, as the fate of gold has already shown us.

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