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 worlds 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 20 15

Natural Gas Nuclear Electric Power

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 60 50 40 30 20 10 0 1950
Source: BP

Million Barrels

1960

1970

1980

1990

2000

2010

China
China exported oil in the early 90s

Today, it is the worlds second largest importer

7 6
Million Barrels/Day

5
Consumption

4 3
Production

2 1 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 worlds 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 2002: 2,942 billion passenger-km
NASA

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
Billion Barrels

40 30 20

Production

10
0 1920

1940

1960

1980

2000

2020

Production & Resources

According to many geologists, resource constraints may soon limit world oil production
30
25
Billion Barrels

Historical Production

20 15 10 5 0 1500

Estimated Resources

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 OPECs 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 6 4 2 0 1950 1960 1970 1980 1990 2000 2010

Saudi Arabia

Source: BP

U.S. Production
U.S. oil production peaked in 1971
10 8

Million Barrels Per Day

Lower 48 states
6 4 2

Alaska
0 1955 1965 1975 1985 1995 2005

Dependency
Industrial nations use most of the worlds 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

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

UN

FAO

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 Economic Growth
1.6 3.2 5.1
0 1 2 3 4 5 6

U.S. Europe India Indebted countries

1.0

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 6-9

Trillion Ton-Miles

5.6 8.8 8.3

6.3

7.1

8.8

12.9

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
400 380 360 340 320 300 280 260 1850 1870 1890 1910 1930 1950 1970 1990 2010
Parts Per Million

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 lead to the spread of diseases like malaria and dengue fever affect the growth and harvest of world food crops

Glaciers are already melting

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 Conflict over water resources

Digital Vision

UN

Weather Disasters
The economic cost of weather-related catastrophes
Billion Dollars

400 300 200 100 0 1980-84

Source: Munich Re

Uninsured Losses Insured Losses

1985-89

1990-94

1995-99

2000-04

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 (1905) Renewable Energy (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 solargenerated 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
2) 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
3) Educate investors and consumers 4) Ensure a skilled workforce 3) Increase public participation

Choices
World Energy Use
35 30 25
% 2004

20 15 10 5 0

Source: Martinot, BP

Choices
World Energy Growth (2002-2004)
35 30
Annual Percent Growth Rate

25 20 15 10 5 0

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 worlds people

Worldwatch Institute
Further information and references for the material in this presentation are available in the Worldwatch Institutes 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