[Peakoil] Oil future raises burning questions

[Antony Barry]

 From The Australian


Oil future raises burning questions

     * Investment in alternative fuels may be key to self- 
sufficiency, Nigel Wilson reports
     * February 12, 2007

AT the height of last year's debate on oil prices, which led to  
governments increasing billion-dollar subsidies on LPG conversions  
for cars, a senate inquiry was launched into Australia's oil supply  
and the prospects for alternatives.
The inquiry was prompted by a question posed by the Greens: whether  
Australia should be concerned about "peak oil", the theory that  
conventional oil production will reach a peak and then begin an  
irreversible decline.

Some would argue the world has already hit peak oil, but the  
consensus of peak oil theorists is that the peak will occur within  
the next 20 years.

Of course, oil industry officials, particularly at ExxonMobil, argue  
that oil supply is a function of price and that for the foreseeable  
future there will be supplies adequate to meet demand.

But it is certainly true that oil discoveries in Australia are  
failing to keep up with demand.

Analyst Graeme Bethune, of Energy Quest, noted last week that for two  
quarters last year Australia was in net energy deficit, that is, our  
revenue from oil, gas and coal exports was less than the cost of  
importing crude oil and refined petroleum products.

But the bringing into production of the Woodside-operated Enfield  
development on the North West Shelf brought the equation back into  
surplus late in the year.

Incidentally, output at Enfield, which is 40 per cent owned by  
Mitsui, has been a lot less than predicted and Woodside has said that  
more wells are needed to extract the oil and lift production to  
100,000 barrels a day (b/d).

The federal Government in its 2004 energy white paper acknowledged  
that Australia's oil discovery rate was falling and that essentially  
the country would have to rely on imports. It suggested that this  
increase in the balance of payments could be offset by high volumes  
of LNG exports. But what the past two years have shown is that while  
the price of crude oil has soared, there has not been a similar  
sustained increase in export LNG prices.

This has been confirmed by the senate's rural and regional affairs  
committee, which warns in its report on the future oil supply and  
alternative transport fuels, released last week, that mandatory fuel- 
efficiency targets may have to be adopted for new cars, and major  
cities may have to adopt measures to halt vehicle congestion as a way  
of reducing demand.

The report says that Australia's demand for petroleum is more than  
750,000 b/d and projected to rise to more than 800,000 b/d by the end  
of the decade and to more than 1.2 million b/d by 2029-30.

"Australia's net self-sufficiency in oil is expected to decline  
significantly as future discoveries are not expected to make up for  
the growth in demand and the decline in reserves as oil is produced,"  
it states.

The committee argued that upstream developments needed to offset  
depletion of existing oil fields and to supply the growth in demand  
would require significant investment.

"All scenarios for future oil production assume increased  
exploitation of non-conventional oil (heavy oil, tar sands, shale  
oil) to offset declining conventional oil.

"Peak oil commentators argue that large-scale exploitation of these  
resources will be too difficult and costly to make much difference to  
the peak oil problems which they predict."

The committee wants federal Treasury to identify options for  
"addressing the financial risks" facing investors in alternative fuel  
projects. "This ... should determine how these risks might be best  
addressed in order to create a favourable investment climate for the  
timely development of alternative fuel industries, consistent with  
the principles of sustainability and security of supply."

This is a particularly prescient recommendation considering that the  
federal Government has been advised of Chevron's renewed interest in  
gas-to-liquids, this time proposing an investment of up to $10  
billion involving the development of the Wheatstone gas reservoir off  
Western Australia.

The scope of this development could be anywhere from 30,000 b/d of  
clean diesel to 200,000 b/d.

Using Australia's vast offshore natural gas reserve to fuel road  
transport is already a commercial proposition, with Wesfarmers  
investing up to $138 million in the construction of a 175 tonnes a  
day LNG plant at Kwinana, south of Perth, plus some associated  
infrastructure and two remote area power stations.

Work on the project began in November and commissioning is scheduled  
for the first quarter of calendar 2008. Wesfarmers says LNG is an  
alternative to diesel and its plant will significantly expand LNG's  
availability in Western Australia.

Wesfarmers has been working on this concept for several years,  
supplying LNG from a pilot plant at Kwinana and from a depot at  
Dandenong in Victoria. Up to 70 trucks are now running on LNG.

Industry analysts say both LNG and GTL have far more long-term  
potential to alleviate Australia's looming liquid fuel shortage than  
converting cars to run on LPG.

The senate committee recommended also that Geoscience Australian and  
ABARE reassess both the estimates of future oil supply and the "early  
peak" arguments and report on the probabilities and risks involved.

"In relation to alternative fuels in general, the committee  
acknowledges that massive investment in large-scale production will  
be essential if they are to replace conventional fuels to any  
significant degree.

"Corporations see this investment as risky. Some alternative fuels  
face consumer acceptance barriers.

"Unless risk can be quantified or controlled investment will not be  
forthcoming."

Source:<http://www.theaustralian.news.com.au/story/ 
0,20867,21208690-643,00.htmlhttp://www.theaustralian.news.com.au/ 
story/0,20867,21208690-643,00.html>
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