Changing the Oil Economy

State of the World

Worldwatch Institute
 The Oil Economy
The Oil Age fueled the 20th Century
How does it affect global security?

• Strategic commodity
• Economic security
• Civil security
• Climate security
• Alternatives
Courtesy Elmendorf AFB
 Oil in Modern Life
How wide spread is our oil-based
culture?

• Cars and power plants

• Personal care products,
cosmetics and drugs
• CDs, cell phones, radios,
cameras, TVs
• Clothing, sports, household
furnishings
• Food production and
transport
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
U.S. Consumption, 1630-2000
Quadrillion Btu
40

35
Petroleum
30

25 Natural Gas

20 Nuclear Electric Power

15
Hydroelectric Power
10
Coal
5
Wood
0
1630 1680 1730 1780 1830 1880 1930 1980 2030

Source: DOE
 Consumption
World Oil Consumption, 1950-2004

90
80
70
Million Barrels

60
50
40
30
20
10
0
1950 1960 1970 1980 1990 2000 2010

Source: BP
 China
• China exported oil in the early 90’s
• Today, it is the world’s second largest importer
7

6
Million Barrels/Day

5
Consumption
4

3
Production
2

0
1970 1980 1990 2000
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
Oil accounts for nearly all transportation energy use

Automobiles
– 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 Digital Vision
 Transportation
Air Travel

Air travel has increased

dramatically since jets were
introduced

– 1950: 28 billion
passenger-km
© NASA

– 2002: 2,942 billion

passenger-km
 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

60
Discoveries
50

40
Billion Barrels

Production
30

20

10

0
1920 1940 1960 1980 2000 2020
Production & Resources
According to many geologists, resource constraints
may soon limit world oil production
30

25
Historical Production
Billion Barrels

20

15
Estimated Resources
10

0
1500 1700 1900 2100 2300 2500

Source: DOD, DOE

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

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

© Getty Images
 Oil Production
Production Per Day

14
Former Soviet Union
12
Million Barrels

10
United States
8

4
Saudi Arabia
2

0
1950 1960 1970 1980 1990 2000 2010
Source: BP
 U.S. Production
U.S. oil production peaked in 1971
Million Barrels Per Day
10

Lower 48 states
6

2
Alaska
0
1955 1965 1975 1985 1995 2005

Source: DOE
 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
 Dependency
Percent of Oil in Energy Budgets

Ecuador

Thailand

Japan

U.S.

France

0 10 20 30 40 50 60 70 80
 Paying the Price
Two decades of stable oil prices have abruptly ended.
Is this a temporary anomaly?

Dollars Per Barrel

 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

Percent Reduction in
U.S. 1.0 Economic Growth

Europe 1.6

India 3.2

Indebted 5.1
countries
0 1 2 3 4 5 6
World Oil Trade, 2002

Exports, MBD
<1
1-2
2-4
5-6
6-9
World Oil Trade, 2020

Exports, MBD
<1
1-2
2-4
5-6 Trillion 5.6 8.8
8.3 6.3 7.1 8.8 12.9
6-9 Ton-Miles
1970 1980 1990 2000 2010 2020
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
Digital Vision

Oil contributes 42% of all emissions of carbon

dioxide (CO2) emissions, a greenhouse gas
 Greenhouse Gas
Atmospheric concentration of carbon dioxide is now higher
than at any time in the last 650,000 years

Parts Per Million

400

380

360

340
320

300

280

260
1850 1870 1890 1910 1930 1950 1970 1990 2010

Source: Scripps Institute of Oceanography

 Greenhouse Gas
Past and future CO2 concentration

Source: IPCC
 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 Glaciers are already melting
– lead to the spread of
diseases like malaria and
dengue fever
– affect the growth and
harvest of world food crops
Temperature Changes
The global average temperature is already higher than at
any time since the Middle Ages
15.0

14.6
Degrees Celsius

14.2

13.8

13.4

13.0
1860 1880 1900 1920 1940 1960 1980 2000

Source: Goddard Institute for Space Studies (GISS)

 Climate Security

Environmental effects from climate

change threaten human security
and the global economy
– Global increase in poverty
– National and regional instability
– Tightened food supplies © Digital Vision

– Conflict over water resources

© UN
 Weather Disasters
The economic cost of weather-related catastrophes
Billion Dollars
Uninsured Losses
400
Insured Losses

300

200

100

0
1980-84 1985-89 1990-94 1995-99 2000-04

Source: Munich Re
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 Renewable Energy

(1905) (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
60,000

50,000
Megawatts

40,000

30,000

20,000

10,000

0
1980 1985 1990 1995 2000 2005

Source: BTM Consult, EWEA, AWEA, Windpower Monthly and New Energy
 Solar
Solar energy is growing even faster
5000

4000
Megawatts

3000

2000

1000

0
1980 1985 1990 1995 2000 2005

Source: PV Energy Systems, PV News

 Biofuels
• Biofuels are joining the bandwagon

35,000
30,000
Million Liters

25,000
20,000
15,000
10,000

5,000
0
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
 % 2004

0
5
10
15
20
25
30
O
il 35
Co
al
Na
tu
G ral
as
Tr
a
Bi dit
Choices

om ion
as al
s
Hy
dr
o
Nu
cl
ea
World Energy Use

r
Re O
ne the
w r
ab
le
s
Source: Martinot, BP
 Choices
World Energy Growth (2002-2004)
35
30
25
Annual Percent
Growth Rate
20
15
10
5
0
ar

s
o

il

d
as l

V
as

al

l
om na
dr

ue

in
s
le

rP
Co
G
Hy

W
Bi itio
c

of
Nu

la
Bi
ad

So
Tr

Source: Martinot, BP
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”
This presentation is based on a
chapter authored by:
Thomas Prugh, Christopher
Flavin, and Janet L. Sawin

www.worldwatch.org