Energy resources & security of supply
The issue of security of supply is now at the top of the energy policy agenda. Concern is focused both on price security and the security of physical supply. At present around 80% of global energy demand is met by fossil fuels. The unrelenting increase in energy demand is matched by the finite nature of these resources. At the same time, the global distribution of oil and gas resources does not match the distribution of demand. Some countries have to rely almost entirely on fossil fuel imports. The maps on the following pages provide an overview of the availability of different fuels and their regional distribution. Information in this chapter is based partly on the report ‘Plugging the Gap’48, as well as information from the International Energy Agency’s World Energy Outlook 2008 and 2009 reports.
Oil is the lifeblood of the modern global economy, as the effects of the supply disruptions of the 1970s made clear. It is the number one source of energy, providing 32% of the world’s needs and the fuel employed almost exclusively for essential uses such as transportation. However, a passionate debate has developed over the ability of supply to meet increasing consumption, a debate obscured by poor information and stirred by recent soaring prices.
8.1.1 the reserves chaos
Public data about oil and gas reserves is strikingly inconsistent, and potentially unreliable for legal, commercial, historical and sometimes political reasons. The most widely available and quoted figures, those from the industry journals Oil & Gas Journal and World Oil, have limited value as they report the reserve figures provided by companies and governments without analysis or verification. Moreover, as there is no agreed definition of reserves or standard reporting practice, these figures usually stand for different physical and conceptual magnitudes. Confusing terminology - ‘proved’, ‘probable’, ‘possible’, ‘recoverable’, ‘reasonable certainty’ - only adds to the problem.
Historically, private oil companies have consistently underestimated their reserves to comply with conservative stock exchange rules and through natural commercial caution. Whenever a discovery was made, only a portion of the geologist’s estimate of recoverable resources was reported; subsequent revisions would then increase the reserves from that same oil field over time. National oil companies, mostly represented by OPEC (Organisation of Petroleum Exporting Countries), have taken a very different approach. They are not subject to any sort of accountability and their reporting practices are even less clear. In the late 1980s, the OPEC countries blatantly overstated their reserves while competing for production quotas, which were allocated as a proportion of the reserves. Although some revision was needed after the companies were nationalised, between 1985 and 1990, OPEC countries increased their apparent joint reserves by 82%. Not only were these dubious revisions never corrected, but many of these countries have reported untouched reserves for years, even if no sizeable discoveries were made and production continued at the same pace. Additionally, the Former Soviet Union’s oil and gas reserves have been overestimated by about 30% because the original assessments were later misinterpreted.
Whilst private companies are now becoming more realistic about the extent of their resources, the OPEC countries hold by far the majority of the reported reserves, and their information is as unsatisfactory as ever. Their conclusions should therefore be treated with considerable caution. To fairly estimate the world’s oil resources a regional assessment of the mean backdated (i.e. ‘technical’) discoveries would need to be performed.
8.1.2 non-conventional oil reserves
A large share of the world’s remaining oil resources is classified as ‘non-conventional’. Potential fuel sources such as oil sands, extra heavy oil and oil shale are generally more costly to exploit and their recovery involves enormous environmental damage. The reserves of oil sands and extra heavy oil in existence worldwide are estimated to amount to around 6 trillion barrels, of which between 1 and 2 trillion barrels are believed to be recoverable if the oil price is high enough and the environmental standards low enough.
One of the worst examples of environmental degradation resulting from the exploitation of unconventional oil reserves is the oil sands that lie beneath the Canadian province of Alberta and form the world’s second-largest proven oil reserves after Saudi Arabia. Producing crude oil from these ‘tar sands’ - a heavy mixture of bitumen, water, sand and clay found beneath more than 54,000 square miles49 of prime forest in northern Alberta, an area the size of England and Wales - generates up to four times more carbon dioxide, the principal global warming gas, than conventional drilling. The booming oil sands industry will produce 100 million tonnes of CO2 a year (equivalent to a fifth of the UK’s entire annual emissions) by 2012, ensuring that Canada will miss its emission targets under the Kyoto treaty. The oil rush is also scarring a wilderness landscape: millions of tonnes of plant life and top soil are scooped away in vast opencast mines and millions of litres of water diverted from rivers. Up to five barrels of water are needed to produce a single barrel of crude and the process requires huge amounts of natural gas. It takes two tonnes of the raw sands to produce a single barrel of oil.
Natural gas has been the fastest growing fossil energy source over the last two decades, boosted by its increasing share in the electricity generation mix. Gas is generally regarded as an abundant resource and public concerns about depletion are limited to oil, even though few in-depth studies address the subject. Gas resources are more concentrated, and a few massive fields make up most of the reserves. The largest gas field in the world holds 15% of the Ultimate Recoverable Resources (URR), compared to 6% for oil. Unfortunately, information about gas resources suffers from the same bad practices as oil data because gas mostly comes from the same geological formations, and the same stakeholders are involved.
Most reserves are initially understated and then gradually revised upwards, giving an optimistic impression of growth. By contrast, Russia’s reserves, the largest in the world, are considered to have been overestimated by about 30%. Owing to geological similarities, gas follows the same depletion dynamic as oil, and thus the same discovery and production cycles. In fact, existing data for gas is of worse quality than for oil, with ambiguities arising over the amount produced, partly because flared and vented gas is not always accounted for. As opposed to published reserves, the technical reserves have been almost constant since 1980 because discoveries have roughly matched production.
8.2.1 shale gas
Natural gas production, especially in the United States, has recently involved a growing contribution from non-conventional gas supplies such as shale gas. In South Africa, three oil companies are eyeing the exploration of natural gas trapped in the underground shale formations in the Karoo. Conventional natural gas deposits have a well-defined geographical area, the reservoirs are porous and permeable, the gas is produced easily through a wellbore and does not generally require artificial stimulation. Non-conventional deposits, on the other hand, are often lower in resource concentration, more dispersed over large areas and require well stimulation or some other extraction or conversion technology. They are also usually more expensive to develop per unit of energy.
Research and investment in non-conventional gas resources has increased significantly in recent years due to the rising price of conventional natural gas. In some areas the technologies for economic production have already been developed, in others it is still at the research stage. Extracting shale gas, however, usually goes hand in hand with environmentally hazardous processes. In South Africa hydraulic fracturing, also called “fracking”, is proposed as the process to exploit shale gas reserves. This extraction method poses a threat to ground and surface water, bringing a significant risk of contamination. Also, fracking uses huge volumes of water. Given that many parts of South Africa already experience water shortages, the prospect of further stressing water supplies could pose serious problems at a local and regional level.