World without oil: could it be a cleaner place?

The Age
Richard Webb
August 13, 2006

As petrol prices increase, so does speculation about alternatives to crude oil and the plastics made from it.

WE WILL be driving around in hydrogen fuel cell cars. Plastic, except in the most specialised applications, will be a thing of the past, replaced by some form of biodegradable, plant-based substitute.

There won't be any polystyrene meat trays, your surfboard will be made from a product derived from vegetables, and as for the common plastic carrier bag, it won't be around at all.

Sound like an environmentalist's paradise? It's not meant to. It's simply a world without oil. Or one variation of it. Another could see the continued use of oil-based plastics but all of them recycled. Maybe everything will be powered by nuclear energy, or through a vast array of water floats capturing tidal power.

The point is, a world without oil is something many believe we will see within our lifetime. Though how it will look when we finally get there is another thing.

Many believe cars will be powered by a fuel other than petrol within 20 to 30 years, give or take a decade. There's a good chance LPG will be the next main fuel source — possibly much sooner than that in Australia if the Federal Government introduces its conversion incentives — but it is likely to take that long before a non-carbon-based viable fuel alternative dominates.

Whether this alternative involves the use of some sort of super-efficient battery, alcohol (such as ethanol derived from sugar cane), biodiesel (a plant or vegetable oil-based fuel), liquid coal or something completely different remains hazy. It might be a combination of these.

Some analysts, such as AMP Capital Investors' chief economist Shane Oliver, have their money on hydrogen fuel cells; others, including IBIS chairman Phil Ruthven, are not convinced. Mr Ruthven reckons it will be some sort of hybrid affair, using a battery and another fuel.

But one thing is clear, petrol will be a no-no. Why? Because by that time the global supply of crude would have fallen far short of what was needed to fuel the world's millions of cars had we continued to use it. That doesn't mean crude oil will have run out. Far from it. New technologies and continued exploration success will mean there will still be oil, but it will only be used in specialised areas where it is still economically viable.
Cutting back
Petrol was selling for up to 142.9 cents a litre in Melbourne yesterday and some believe it is only a matter of time before we hit 150 cents a litre. The average household uses 43 litres of petrol a week, but we are taking heed of these record petrol prices and cutting back.

Deutsche Bank chief economist Tony Meer says the volume of petrol consumed has fallen by 3 per cent since June 2004, a period when our total volume consumption of goods rose 6 per cent. But local petrol consumption is a small drop in the global ocean and there has been no sign of cutbacks in the US, the world's largest oil consumer. Petrol consumption there is still rising and Americans still primarily use heating oil to keep their houses warm.

AMP's Mr Oliver says this, together with ballooning oil demand from China, are two reasons why the global supply/demand balance for oil is so tight, and worsening. We now produce 86 million barrels of oil a day at full capacity but are consuming 85 million barrels. Five years ago we had 6 million barrels a day of spare production capacity. There are few fresh supplies of oil emerging because the historically low oil price through the 1990s made oil exploration uneconomic.
Supply is tight
Tight supply is the reason why the global price of crude jumps on the first sign of production troubles, such as BP's problems at an oil field in Alaska last week.

But Commonwealth Bank commodity analyst Tobin Gorey says the high price is the solution rather than the problem. "Oil has for a long while been a very cheap way of doing things but now prices are higher, people are starting to look seriously at alternatives."

Deutsche's Mr Meer is not concerned about this energy evolution either. "There is going to come a point where another source of energy will become more economically viable and it will take over," he says. "It's not going to result in disaster."
Third shock
AMP's Mr Oliver reckons we are in a third oil shock. He says that even without major problems, oil will be at $US100 a barrel in two years' time and we will get there much sooner if the world's oil supply takes a hit somehow. He says this means the days of cheap travel are over.

"Oil will not necessarily run out, it will fade away through time — in 20 years' time I don't think you will be able to buy a car fuelled by petroleum," he says. "But most people will feel it in the sense that the price of travel will continue to rise over those 20 years until it becomes viable to switch to an alternative fuel."

CommBank's Mr Gorey says short-term the impact will also be felt in the agricultural market — the sugar price has trebled since 2004 partly because of the use of sugar cane to make ethanol.

IBIS's Mr Ruthven says all major fuels eventually get superseded — wood and bagasse (sugar residue) dominated in the early 1800s, coal in the early 1900s, then oil over the past 50 years. He says natural gas is most likely to take over from oil, then nuclear, then solar, wind and tidal power.