MID team confronts oil scarcity

During the last 7 days, a new stage of the Maurice Ile(s) Durable(s) policy process has got under way. The working groups for the 5 focal areas (energy, environment, employment, education and equity) have had their first of four sessions. We are participating in the one on energy which covers demand (transport, industry, homes, lifestyles, etc) as well as supply (moving away from fossil fuels). We will provide you with progress reports and ask you to share your views so that we can feed them back to the working group. This is a national experiment in participatory democracy and your voices count.

One important issue that was raised (quite vocally by one participant) is the scarcity of oil. It was pointed out that although our government acknowledges this reality, few strategies are being put in place to deal with it. This is a topic addressed (for the first time) by the latest issue of the IMF’s report the World Economic Outlook, from which we have extracted the following:

Oil is considered scarce when its supply falls short of a specified level of demand. If supply cannot meet demand at the prevailing price, prices must rise to encourage more supply and to ration demand. In this sense, oil scarcity is reflected in the market price.

In practice, it is important to distinguish between scarcity and other reasons for high oil prices. Scarcity usually refers to the declining availability of oil or other exhaustible natural resources in the long term. However, oil scarcity in the sense of high and increasing oil prices can also arise for other reasons over shorter horizons. Temporary supply shocks, for example, can lead to short-lived price spikes, as during the 1990–91 Gulf War.

Oil is the most important source of primary energy in the world, accounting for about 33% of the total; the other two main fossil fuels, coal and natural gas, account for 28% and 23%, respectively. Renewable sources of energy are in a rapid growth phase, but they still account for only a small fraction of primary energy supply. The context for much of the current concern about oil scarcity is the increase in the growth rate of global primary energy consumption in the past decade. This acceleration primarily reflects an upward shift in the growth of energy consumption in China. As a result, China’s share of world consumption of primary energy has risen rapidly and China is now the largest energy consumer in the world.

Given the empirical relationship [a 1 percent increase in real per capita GDP is associated with a 1 percent increase in per capita energy consumption] and the most recent WEO forecast for China’s per capita GDP, at current energy prices, energy consumption in China is projected to double by 2017 and triple by 2025 from its 2008 level. But it remains to be seen whether China will be able to sustain such rapid growth.

Prospects for oil supply are strongly dependent on production constraints in some major producing economies stemming from their oil fields reaching maturity — the stage when field production plateaus or declines. These constraints became obvious when global crude oil production stagnated broadly during the global economic boom in the mid-2000s.

Most maturity-related declines have emerged in economies that are not members of the Organization of Petroleum Exporting Countries (OPEC), including Russia, but some OPEC producers reportedly also face challenges from mature fields, including Saudi Arabia.

The main reason behind continued, if not increased, oil scarcity is the tension between, on the one hand, the downshift in oil supply trends by some ¼ to ½ percent, with further downside risk, and, on the other hand, the strong momentum in oil demand growth stemming mainly from rapid income growth in emerging market economies.

In summary, oil is already scarce and the growth of China (and India, etc) is going to make it more so. The report then goes on to state the obvious that the price of oil is going to increase, perhaps by 200% in 20 years. This will lead to other energy sources being substituted for it such as renewable energies and (very polluting) oil shale and tar sands.

We fear that other countries will follow South Africa’s example and transform coal into liquid fuels. In turn, this will increase the demand for coal, causing its price to escalate to the same level as oil. It will also speed up the time by which coal becomes scarce. Even the World Coal Association is uncertain that coal will last much more than 120 years and a National Geographic article states that we are already near peak production. It will also dramatically increase the rate at which carbon dioxide is released into the atmosphere with consequent long term impacts such as climate change and sea level rise.

Given that Mauritius’ transport system is totally dependent on petroleum products and 75% of our electricity comes from fossil fuel (half of which is petroleum based and the other half coal), our economy and our way of life are at high risk:

  • First from probable short term spikes in the price of oil.
  • Second from inevitable medium term increases in the price of both oil and coal.
  • Third from possible prolonged interruptions in supply.
Surely the MID strategy must do more than put a small dent in our enormous dependence on fossil fuels? Rather it must set us on a path to supplying 100% of our needs with sustainable renewable energies by the earliest date possible. Displacing only 20% of our petrol consumption with ethanol up to 2025 and ignoring diesel entirely seems to be too little, too late. Building new coal power stations instead of harnessing the wind and sunshine appears simply insane. What do you think?
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