According to BP, 42 years is how long the world’s remaining proved oil reserves will last. The company also believes that, based on 2008 consumption levels, natural gas reserves will last 60 years and coal supplies for 122 years. The calculations assume constant 2008 consumption rates.
BP’s annual Statistical Review of World Energy is a useful piece of work because, if nothing else, it reminds us every year about the urgent need to develop alternative sources of energy and the need to do lots of things differently in the very near future.
It’s a pity, then, that it probably won’t end up on many suburban coffee tables because it is important that more of us begin to understand that 42 years is not actually a very long time.
It happens that, in the first novel and radio series, a group of hyper-intelligent pan-dimensional beings demand to learn the Ultimate Answer to the Ultimate Question of Life, The Universe, and Everything from the supercomputer, Deep Thought, which was specially built for this purpose.
It takes Deep Thought 7.5million years to compute and check the answer, which turns out to be 42. Unfortunately, the Ultimate Question itself is unknown.
Is it a coincidence that BP has just arrived at the same number?
What BP’s 42 means is that someone born today will, by the time they reach middle-age, be living in a world where oil is extremely scarce and expensive.
Although oil consumption declined by 1.2million bpd, or 1.7%, in the last year or so, we can safely expect that decline to fade away as economic growth returns.
It could, therefore, be that BP’s 42 years is optimistic – unless, of course, the industry finds itself another Middle East or even a North Sea. Unlikely, perhaps, but I’m an optimist at heart.
At the moment, though, all exploration and development work is simply delaying the inevitable. Whether in 42 years or 50, there will come a moment when the use of oil will simply be no longer economically viable or, indeed, practical.
However, the most interesting aspect of BP’s 42 years figure is that it really means oil is now not a real threat to the climate. As its use declines, whatever environmental impact it might have been having will fade. So maybe this is good news for the planet but bad news for environmental groups who will have nothing left to protest about in respect of oil – although I’m sure they’ll think of something.
But, of course, these figures also raise the question as to what companies like BP should be doing now to ensure their own survival and to be able to keep on providing energy profitably.
Self-evidently, BP, and all the other companies, need to continue to explore for new oil reserves – push beyond that 42 years.
I do not agree at all with President Obama that deepwater offshore oil exploration should be banned (and I’m glad the US courts have now overturned that decree) because we need as big a buffer as possible to give us enough time to be able to loosen our reliance on oil.
At the same time, though, we need to look at ways of reducing the risks and costs associated with such exploration. It’s not beyond the wit of the industry to develop new technologies to make deep water less hassle, provided the operators can be persuaded to adopt them.
The latter, though, is actually more difficult than developing the technology in the first place.
Albert Einstein said: “We can’t solve problems by using the same kind of thinking we used when we created them.”
He was right and, what’s more, that philosophy needs to be applied both to the oil&gas industry and the issue of what to do as the oil&gas industry winds down.
The omens, though, are mixed. Oil companies and other energy companies do not seem to be investing as much in the next energy era as they should, and it’s high time that the shareholders of these companies got a grip of what they’re up to otherwise they may simply not be there in 42 years’ time. In fact, the way some of them are behaving, they may last a lot less than that magic period of time.
If you are looking for clues to the future shape of the industry then look no further than the recent “merger” between the Acergy and Subsea 7. Looking beyond all the corporate PR nonsense that accompanies such deals, this deal is clearly a reaction to the potential for a reduction in offshore activity over the next couple of decades, as well as an intelligent business decision for the current market conditions. The really interesting question, though, is what the “new” company will do next. However, being essentially a Norwegian entity, I would expect it to be already thinking about how it makes the best of the great energy transition.
They will be fun and interesting times for smart companies, but a miserable time for those that remain anchored to Nineties thinking and practices, and to be quite honest, companies that don’t grab the opportunity deserve to fail.
Here, in Scotland, of course, we don’t have the benefit of massive Government R&D programmes as they do, for example, in the US. Sadly, and again unlike the US, we also don’t have the benefit of a vibrant market in venture capital.
It therefore always amuses me when organisations like the Scottish chapter of the CBI, in its pre-Budget pleading, says we need “a new energy strategy to ensure more effective decision-making, more clarity of policy direction and to help commercial users and suppliers of power to plan investment strategies and make business decisions with more confidence”.
Frankly, I haven’t a clue as to what they’re talking about. We all know what’s happening and what’s needed, so rather than creating reams of gobbledegook, the CBI would be better off directing its efforts towards some of its members in the financial-services sector and encouraging them to lend to small clean-tech companies and to provide the industry with considerably more risk equity capital.
We need more start-ups in the energy sector, and it is encouraging to see that, in the recent Budget, efforts have been made to try to assist this. In a nutshell, the new Chancellor announced a regional employer national-insurance holiday for new businesses, which means that, in Scotland, new companies will not have to pay NI due in the first 12 months of employment for each of the first 10 employees hired in the first year of business.
In addition, James Dyson’s report, titled Ingenious Britain, issued in March 2010, (well worth a read) states that R&D tax credits should be “refocused on hi-tech companies, small businesses and new start-ups in order to stimulate a new wave of technology”. A man after my own heart.
Finally, a decision has been made that the small company profits rate of corporation tax will fall to 20% for 2011-12, rather than increasing to 22% as previously announced.
Added together, these changes and others should provide an incentive for new investment in new companies. However, this assumes that those that could provide the investment are actually interested in playing the game.
To that end, one other measure in the emergency Budget that I think hasn’t gone far enough is the so-called bank levy, which will raise about £2.5billion in tax annually.
To be frank, the banks will hardly notice this, so why not go one step further and force them to put up an additional £500million on a rolling (annual) basis to fund start-ups and early-stage companies?
That’s it. Ramble over.
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