Phasing out oil

The World Petroleum Congress in Calgary, Canada, opened in mid-June 2000 amidst protests by hundreds of demonstrators, forcing the police to take extra precautions. This was not so unexpected. Protests against oil exploration in ecologically sensitive areas have been voiced for quite sometime now. The problem of greenhouse gas emissions from the use of petroleum products has also been increasingly regarded as serious, more so since the Kyoto Protocol of 1997. The Arctic National Wildlife Refuge in Alaska has been under threat because the area is believed to be extremely rich in oil and gas and this has attracted most attention worldwide. According to a report prepared by the Energy Information Administration, US department of energy, the refuge could generate 1 million to 1.4 million barrels of oil a day during peak production and inject anywhere from $125 billion to $350 billion into the US economy over a 60-year period. However, according to environmentalists, the report does not address many issues related to the economics of oil extraction; further, given the pristine environment of the refuge and its rich bio-diversity, no amount of oil could make them change their mind. In India, only six out of the country?s 26 sedimentary basins have been explored so far and that too, not fully. At present, we import more than half the oil we require and this proportion is increasing. This means we have to intensify exploration, especially in remote areas and in the deep waters where the prospects are the best. So far, exploration and production of oil and gas have been carried out with adequate consideration for the environment; however, it would be a challenge to keep it that way with many more players coming in with more aggressive drilling programmes. The more fundamental point that many environmentalists have raised is whether we should explore at all given the reserve to production ratio for oil standing at 43 years (meaning that we have 43 years? supply at current production rates). The oil industry spends about US$ 15-20 billion on exploration every year. Would it not be much more to the point if this money is spent on developing cleaner alternatives? The industry is quick to point out that, globally, we need to increase the production if the growing demand for oil, much of it from the developing countries, has to be met. It is estimated that the current consumption of 75 mbd (million barrels per day) would increase to 112 mbd by 2020. This means that we have to extract nearly 670 billion barrels in the next 20 years. Although we have some 800-1000 billion barrels of discovered oil waiting to be taken out, the rate of extraction is not completely in our control. In fact, oilfields enter a phase of declining production once half the oil has been extracted. Therefore, unless we develop a global economy that is far less energy-intensive and decrease overall energy consumption, there is no choice but to find new fields. The transition from an oil-based economy to one based on clean fuels would perhaps be an established fact by 2030 or thereabouts. The oil industry recognizes this and has shown strong interest in solar power, bio-mass, and wind energy. Should this transition be expedited by subsidies on renewables and restrictions on oil production or consumption? As expected, oil producers have opposed all such moves. In doing so, they have found it convenient to plead the case of the developing countries which are desperate for oil and poorly equipped for improving energy efficiency or adopting alternative energy sources. While this is admittedly true, it has not deterred these countries from casting their votes in favour of the environment and working out their own position in the debate. The transition could be speeded up by taking into account the cost of pollution caused by oil. For a large part, the economics of using conventional fuels instead of the alternative fuels are attractive as users do not have to pay for the pollution they cause ? it is the economy as a whole that ends up paying for it in terms of clean-up costs, increased spending on health care, lost productivity, and reduced output of food and non-food products from rivers and forests. Thus, appropriate fiscal measures would not only ensure earlier mass adoption of cleaner fuels and technologies but also benefit the economy as a whole in terms of reducing overall spending associated with energy consumption.