We are living through a slow motion global energy crisis - and only clean tech can save us

James S Murray
@James_BG
20 June 2014

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BP's latest statistical report should be a wake-up call, that it is not suggests we are sleep-walking into a climate and energy disaster

Followers on Twitter will already be aware that I spent much of Tuesday angry and bemused at BP's latest annual Statistical Review of World Energy and the quite frankly terrifying data contained therein. Although in fairness it wasn't the report that prompted my anguished response, more the staggeringly insouciant interpretation of its findings offered by BP and the selective blindness of the world's media when it comes to the long term risks the oil industry's data so explicitly exposes. As Mat Hope of Carbon Brief observed: "If only @BusinessGreen was print, i'm pretty sure we'd see @James_BG tears of frustration smudged across the page". There were no smudged tears, but I'd challenge anyone who cares about the planet and the global economy not to look at our collective willingness to ignore the challenges BP's report makes plain and not get a bit upset.

For those of you who missed BP's report - and you'd be forgiven for doing so, given that despite its explosive findings relating directly to the headline grabbing events of recent weeks, it was never going to dominate the business pages in a week in which Iraq continued to implode and Russia upped the ante in its stand-off with Ukraine - it offered a snapshot of the current global energy market, confirming that the scary long term trends the oil industry declines to talk about in public are still very much present and correct.

As I argued on Tuesday, those trends can be divided into two overarching risks - climate change and energy security - both of which BP's statistics suggest are bad and getting worse.

On the climate change front the report confirmed that following a modest slowdown caused by the financial crisis annual increases in energy use and emissions are almost back up to their 10 year average. Meanwhile, the rapid and disruptive expansion in clean energy globally is barely putting a dent in the continued dominance of fossil fuels, which was further aided by a three per cent jump in coal use last year. Clean energy may be making impressive strides, but there is no reason as yet to update BP's similarly under-reported admission earlier this year that it expects greenhouse gas emissions to rise 29 per cent by 2035, essentially condemning the world to temperature increases well in excess of 2C.

On the energy security front, the BP report is, if anything, even more of a cause for concern, at least in the short term. In a speech that sought to redefine the concept of irony, BP chief executive Bob Dudley told his audience at the World Petroleum Congress that "energy can act as a bridge" between nations. This was on the same day as Moscow turned off the taps on gas to Ukraine and Islamist militants laid siege to Iraqi oil refineries.

Dudley's central argument was that the disruptions to supplies - that he acknowledged were becoming a way of life for the oil industry - were being compensated for by increased production, primarily from the US, leading to a historically benign period of stable oil prices. As Dudley observed, the report, and its identification of stable oil prices, "demonstrates the strength of the flexible global energy system in adapting to a changing world".

But what BP failed to highlight was that those stable prices have now stayed above $100 a barrel for three consecutive years. The most important graph in the entire report shows that oil prices, adjusted for inflation, have never been higher since the Pennsylvanian oil boom of the 1860s. For three consecutive years prices have been higher than during the 1970s oil crisis and the pre-2008 boom, and all this during a period that Dudley describes as being characterised by a "stagnant global economy". If anyone ever doubted the wisdom of billionaire investor Jeremy Grantham's assertion that the days of abundant resources are over they should take a look at BP's graph on historic oil prices and the concentration of record spikes over the past 10 years.

What BP and Dudley are effectively saying is that a "strong" and "flexible" global energy market capable of "adapting to a changing world" cannot currently deliver oil at under $100 a barrel. Just imagine where a weak and inflexible market would leave us. Want to know why the global economic recovery has been so slow and fragile? There is one of your answers right there.

Of course, the trillion dollar question is what happens next? BP's press office explained its review was neither forward looking, nor included models of how it would like the world to be. But as BP's chief economist, Christof Rühl, explained the balancing act being performed by supply disruptions in the Middle East and increased production in the US is "a sheer coincidence" that cannot last indefinitely. Something has to give at some point.

There is of course the possibility that US production will continue to surge, new fields will be opened up in new regions, and the Sunnis, the Shias, and the Kurds will agree to chill out and talk about their differences. However, there is also plenty of evidence to suggest tensions in the Middle East will continue, new fields, many of which require ever higher capital costs to exploit, will struggle to keep pace with booming Asian demand, and the US shale oil boom will start to plateau. As those who warn of a potential peak oil scenario have long warned, the risk is not the oil running out, rather the flow rates failing to keep up with demand - this is basically the scenario we've seen in the last three years as prices have stayed stubbornly above $100 a barrel. It could continue for a good while yet.

Prices will no doubt fluctuate in the future, but certain market characteristics are incontestable. Traditional powerhouse regions like the North Sea are maturing fast, capital costs across the industry are soaring, demand is showing no signs of slowing, those new supplies that are coming online - the Arctic, tar sands, shale oil - are increasingly costly and high risk from both a technical and environmental perspective, and the oil industry keeps telling us it is extremely relaxed about these facts. Oh, and even if we could find a way to boost oil supplies it would only make the longer term climate risks we face even worst.

We are facing an appalling double bind. Solve the energy security crisis by boosting oil and gas supplies to such a level where we can return to the business-as-usual, low cost energy scenario that held sway throughout much of the 20th century and we might get a short term boost to growth, but we would then only serve to escalate the unfolding climate crisis.

What can be done? Faced with these realities it becomes slightly easier to understand why some in the energy industry get so animated about gas and the potential for it to provide the oil majors with the get out of jail card that some executives privately admit that they desperately need. But this fixation on gas as a saviour only makes sense if you either ignore the warnings of climate scientists or are confident you can deliver workable CCS worldwide within 10 to 15 years. To ignore climate warnings is deeply reckless and to bet everything on a CCS industry the oil and gas sector has done little to advance is the height of wishful thinking.

Dudley's response to the various challenges the industry so clearly faces is to gloss over the energy security risks, ignore the climate risks, and offer a more of the same approach with a slight shift in focus towards gas. As he said earlier this week: "supply will need to grow to keep pace with [rising demand]. And that is why the industry is still going to new frontiers to provide the energy that the world needs - as capital discipline allows. That includes shale oil and gas, tight oil and gas and deeper offshore wells and working in the Arctic."

Or, in other words, screw the climate and trust the oil industry to do its best to keep up with rising demand, even though the last few years have shown that we're really, really struggling on that front.

Thankfully, there is an alternative response that might just work - and if you ignore the entrenched thinking and oil industry spin that accompanies the barely concealed warnings contained in BP's latest report it quickly becomes apparent that it is the only rational response. We need a global effort that curbs fossil fuel demand by replacing oil, coal and gas, with renewables, nuclear, and energy efficiency. We need much more ambitious action to bring down the upfront cost of clean energy, mobilise energy saving technologies, and accelerate the already exponential growth in clean energy deployment.

We have the technologies to achieve this and we simply need to deploy them at scale, right now. Not just because it will tackle climate change risks and deliver inordinate environmental and health benefits. But also because without it we will almost certainly have to get used to a world where oil priced at over $100 a barrel becomes less of an historical anomaly and more a depressing reality. A world where economic growth is only sustained through unsustainable exploitation of ever more expensive and destructive oil reserves in the Arctic and beneath the deep ocean. A world where control over ever more scarce energy reserves is held by the same regimes that are currently doing their best to orchestrate a 30 year sectarian war.

Fail to get ourselves off the oil hook and there will be a lot more to cry about than just BP's recklessly relaxed response to the crisis it has uncovered.