In 2005 RICS Business published an article entitled “The Energy Timebomb”, warning of “significant problems within 10 years” for world oil supplies.
Today the International Energy Agency (IEA) calculates that global spare oil production capacity will fall from 3.5% of global demand in 2008 to just 1.6% in 2012.
In the wrong place, war or large hurricanes, for example, would be enough to wipe out that margin.
By 2015 the IEA estimates a 13.5 million barrels per day supply deficit due to a “huge decline in the non-OPEC countries”.
It says this is “not an investment issue, not a political issue, but it is more geology.”
Within OPEC politics and investment play a greater role. Iraq has more potential to expand conventional oil production than any other country, given sufficient investment.
However, with the 2003 war still unfinished, that investment, and the corresponding additional oil flows, have not materialised.
60 of the world’s 99 oil-producing countries are now past their peak production. Exploration is being forced into ever more challenging environments, such as deepwater ocean and the arctic, where cost overruns and project delays are common.
Al Gore’s former presidential running mate, Senator Joe Lieberman, has warned that competition for oil between the United States and China, the world’s two largest oil importers, could become “as hot and dangerous as the nuclear arms race between the US and the Soviet Union did in the last century”.
Global oil demand in 2007 was 86 million barrels per day, with the IEA predicting over 87 million in 2008, and 99 million in 2015.
Total and ConocoPhillips both expect there to be an ultimate ceiling on world production of 100 million barrels per day or less.
The situation for gas is equally bleak. Due to lack of investment, Russia has warned that it may be unable meet even its own domestic gas needs by 2010.
Both the European Commission and the IEA also say there is the prospect of insufficient Russian gas exports to Europe in the next decade.
Russia, Iran, and Qatar hold over half the world’s gas reserves.
But due to rising domestic demand, and lack of investment, BP estimates that the gas supply deficit to Gulf countries themselves could reach 7 billion cubic feet per day by 2015.
There are major implications for all areas of life, including property. 40% of energy consumed in the EU is by buildings.
The most optimistic figures produced by the IEA show nuclear meeting only 6.9% of total global energy demand by 2030.
And at that level it forecasts a global uranium shortage by 2020 unless there is a major expansion in new mining investment.
It can take more than a decade to bring a new uranium mine on stream.
Some feel that switching to more coal (for heat, power, and synthetic oil) and tar sands (for synthetic oil) offers suitable alternatives.
However for oil, the speed with which such ‘unconventional’ resources can be exploited is a major constraint. The IEA’s chief economist says they can make “some positive contribution, but it is very limited.”
Moreover, producing unconventional oil is even more CO2 intensive than regular oil.
However, might not carbon capture and storage help to mitigate this?
Former British Chancellor Nigel Lawson recently warned that such technology may not exist for another ten, twenty, or thirty years.
The current Chancellor, Alistair Darling, has said “it may never exist”.
The message for the property sector and society as a whole is clear.
For both climate change and ‘security of supply’ reasons there has to be a huge drive towards integrating energy conservation and renewable energy into our daily lives.
With most of its impact still to come climate change considerations have not so far caused a major change in the way we live.
But soon difficulties on the energy supply side may force us to move much more quickly.
So, what contingency plans are there?
Very few, it appears.
Last autumn former US Energy Secretary James Schlesinger said that “politicians will ultimately find that the public blames them for [the] failure to warn them.”
Perhaps it is time for Chartered Surveyors to step in where others fear to tread.
Mark Griffiths BSc FRICS FAAV, Dreweatt Neate
mgriffiths@dreweatt-neate.co.uk
