In Praise of Oil ... Now What Next?

Where would we be without oil?

Our modern civilisation is built on cheap energy provided by oil (oil is taken to mean oil, gas, LPG, LNG etc). Oil is used by nearly all of us either directly, or more commonly, via refined products: petrochemicals; plastics; synthetic materials – checkout this list out for some surprises. 

Most modern world developments have been enabled by cheap energy and nearly everyone in the world has benefited from oil. 

How valuable oil is from a purely energy perspective? A barrel contains around 6 Gigajoules of energy which is roughly 4,000 manhours or two-man years of work; for say $50 / barrel that’s cheap! 

Not surprisingly given its energy and economic potency we’ve been intoxicated with oil for over 150 years. 

The True Cost of Oil

We generally think of the direct purchase-cost of oil and do not take account of what economists call “externalities” (defined as ‘a consequence of an industrial or commercial activity which affects other parties without this being reflected in market prices’). 

Oil has huge externalities which are generally ignored, those cost are however eventually socialised while the profits are privatised.  

So, what are those externalities and hence what is the true societal cost of oil? 

Some scholars have attempted to answer this question but did not produce a definitive figure, not really surprising given the many areas impacted:

* Military, strategic and political costs;

* Government subsidies, tax breaks, loss of royalties;

* Economic costs associated with supply and price disruptions; 

* Direct health costs;

* Loss of life (e.g. in oil related wars);

* Societal costs e.g. oil dependency, "resource curse" (or paradox of plenty where countries blessed with plentiful natural resources often have worse outcomes than countries with fewer natural resources), hindering development of superior energy technologies, corruption (direct and indirect, e.g. undermining representative democracy, denial of science, lobbying etc);

* Environmental pollution costs to air, water and soil quality;

* Atmospheric pollution caused by CO2 emissions.

Notwithstanding that these costs are borne by all life of earth and our planet itself, and despite these enormous costs, we have, up to now, been happy to wear them as a price for ‘development’. However, we are now at a crossroads as atmospheric pollution caused by the burning of fossil fuels has resulted in clear and significant climate change. The many harmful consequences includes:

* Droughts (rule of thumb for climate change is dry places get drier and wet places get wetter – so yes floods too) and the knock-on impact. Sure we can truck water in the short term for people, cattle and crops but what about the forests, the bush and the fauna? Once they’re impacted, there's a range secondary impacts including species and ecosystem collapse, cultural impacts on traditional owners, collapse of farming communities, small towns and regional centres; 

* Bushfires – we’ve just seen what a relatively small amount of warming has done to the bushfire risk in Australia and witnessed the devastating impacts of the 2019-2020 Australian bushfires: 18 million hectares burnt (an area larger than Cambodia), over a billion animals, 27 people lost their lives, 5,900 buildings destroyed including over 2,800 homes, the ongoing ecological and biodiversity impacts, public health and mental health impacts, economic impact, climate change impact from increase in emissions and reduction in carbon capture and storage;

* Agriculture – lower yields, shorter growing season, lower nutritional value, increased costs leading to higher food costs for basic food, food scarcity and food shortages;  

* Marine life and fisheries (fish, mollusks, crustaceans, any harvested aquatic animal) are extremely sensitive to changes in temperature, acidity and ocean currents that impact reproductive rates, mortality and even collapse like that experienced by the Atlantic cod fisheries. Harmful algal blooms spurred by warming waters have triggered die-offs of marine life and produced toxins that closed the US West Coast’s crab fishery during the 2015-16 season;

* Heatwaves and severe storms impact on communities and environments already weakened by other climate change effects;

* Climate refugees – we think of refugees as external such as those from our South Pacific neighbours seeking higher ground but Western Australia’s rural, regional and remote communities will be impacted more than urban dwellers and so we may then see internal climate refugees. To give some scale to the potential problem, a 2018 World Bank report estimated that by 2050, there would be 143 million climate change-driven migrants from the regions of Latin America, sub-Saharan Africa, and southeast Asia alone;

* Human health and wellbeing impacts: physical health such as heatwaves (these have caused more loss of life than any other natural hazard in Australia over the past 100 years) and those caused by poor air and water quality. Other impacts are increased including injuries, disease and death, and disruption to provision of health services. Climate change (especially drought) has been linked to decreased mental health, particularly in rural communities. Climate change has also been linked to release of new viruses and bacteria impacting human and animal health;

* Coasts and built environment - sea-level and temperature rise and extreme events (storms, foods, bushfires) will impact our coasts, commercial and residential buildings, businesses, communities, energy, water and communications utilities, and transport systems;

* Civil society breakdown – a number of social scientists (and the Australian Defence Force) have studied the impact of climate change and the possibility of a breakdown of civil society caused by say food riots or climate refugees. This a number of countries this is the Number One national security issue.

Climate Change - At the Crossroads 

Like it or not, we are right now at the crossroad; that typically suggests choice of direction. However now there is only one option available if we want civilisation, as we currently know it, not only to survive but hopefully to thrive (that is by meeting the UN’s seventeen sustainable development goals). This crossroad or turning point is clearly illustrated in the IPCC 2018 special report. 

Twenty or thirty years ago, we might have been able to accommodate a 'third way' if an internationally-traded carbon-tax scheme had been adopted and the market alone might have worked to significantly reduce atmospheric emissions. But in what has been the most spectacular market failure in modern times, that third way has long been closed-off. Of course, that's not to say that carbon pricing should be ignored in the battery of solutions required. 

On climate change, we have fallen over the cliff. We are no longer looking at prevention but at mitigation, building resilience and making deep adaption to try and minimise the growing climate change impacts. How far to we wish to fall off that cliff? There are very different outcomes for landing at 2 ?C, 4 ?C, 6 ?C degree warming (note these are average global temperature rises with much higher temperatures at the poles).

Most of us are aware that the problem of climate change exists but many think that as a race we’ve survived thus far, surely 'something will turn-up'? This widespread faith in ‘something turning-up’ (a technological fix, divine intervention) is both misplaced and a form of climate denialism. We, the people alive now, need to fix this problem and act with the solutions to hand now. 

Why us? because unfortunately those in positions of power (our elected officials, big business, institutions) have caused or have been complicit in the climate problem, have denied its existence for too long and have deep and wide vested interests which prevents them from disrupting "Business As Usual". 

We need to bring influence on those in power to apply the powerful policy levers that will bring about the necessary changes, in the time available (the global reaction to COVID-19 has shown just how powerful those levers are). “Customer driven change” as recently cynically touted by the Oil & Gas industry: buying a few electric cars, choosing a domestic green electricity option, flying less, going vegan and recycling more is simply not enough. 

The economic stimulation package for COVID-19 is geared at getting back to normal as quickly as possible – but the world can’t survive Business As Usual i.e. 'normal', and we need to take this opportunity within a crisis to bring about a future that secures the things we all universally value (clean air and water, access to food, shelter, freedom from harm, functioning democracy, rule of law, equality of opportunity). 

So What Next

The burning of fossil fuel has driven us to and beyond hard planetary limits: the amount of atmospheric carbon dioxide exceeds Earth’s ability to recarbonise it in land and ocean. So, oil, unfortunately for a few but thankfully for the many, cannot play a part in this new future. Energy will continue to play a huge part in the future (I’m not advocating a return to living in caves) and the way forward from a purely energy perspective is clear:

* Wide spread electrification in industry, transport, domestic heating and cooking;

* Renewable Energy Sources (RES - solar, wind, hydro, geothermal);

* Green hydrogen (as a true transition fuel) produced from water and RES; 

* Green methanol or ammonia as a liquid fuel (ammonia has a higher volumetric energy density than liquid hydrogen and liquid at atmospheric pressure and temperature);

* Green synthetic liquid fuels (petrol, diesel, heating oil, kerosene) from green hydrogen, carbon dioxide drawn down from the atmosphere (or from waste stream) and methanisation. 

On energy its worth dispelling a few myths:

* Nuclear power is a distraction promoted by big business to solve a problem (replacing coal-fired power stations) that can be better solved by large scale RES, energy storage systems such as batteries, pumped hydro and green hydrogen.

* Gas as “transition fuel” is a sales promotion like “clean coal” to allow Oil & Gas companies to monetise our carbon reserves that appear on their balance sheets and that drive their market evaluation and share price.  

* Blue or Black hydrogen produced from hydrocarbons or coal respectively is a distraction raised by those wishing to sell those gas or coal reserves.

In closing, we need to acknowledge the positive contribution oil and all those involved in the Oil & Gas industry have made to all our lives. They are not to blame, we are all implicated in the climate crisis. We need to work on a just transition for industry workers – given the projected number of jobs in the green economy there is likely to be a shortage of expertise. 

The days of the traditional Oil & Gas company are finished – we have witnessed their terminal decline over recent years as the world starts to decarbonise, investors withdraw funding and operating companies’ social licence to operate erodes. 

Two stark examples of this decline are, as of end March 2020, Atlassian’s market cap at A$35b was worth more than Woodside (A$17b), Santos (A$7b) and Origin (A$8b) combined! Similarly in the US the NYSE recorded the combined cap of Exxon Mobil ($156b), Chevron ($129b), BP ($77b) and Shell ($121), at $483 billion which was 63% that of Google ($762 billion).

Our energy future can be led by energy companies that have renewable energy at the core of their business model and the best interests of the planet and all life on earth as their intent. We need to support those companies with our intellectual, financial, political and social capital.