Think tank


AUSTRALIA'S dwindling crude oil reserves will run out within seven years at current production rates, if there are no new discoveries.
Likely further finds will only delay the inevitable: the nation's fleet of 13,920,105 vehicles will become increasingly reliant on oil imports, unless and until alternative fuels fill the breach.
The decline of the nation's oil reserves has been long predicted. But a combination of other international factors has highlighted the need for alternative fuel sources: climate change concerns, sky-high fuel prices, a reliance on imports, and discussion about when the world will have used more oil than is left underground.
These issues have attracted wildly diverging opinion, with most saying crude oil will remain plentiful for decades, while others believe the moment of "peak oil" has passed. (Global oil reserves totalled 1.2 trillion litres last year, according to BP. The International Energy Agency's estimated global demand of 84.9 million barrels a day.)
With Australia more reliant than most on oil-based transport, our fuel debate is spurring research, prompting a policy rethink and opening potential markets as alternatives become more viable.
Today, petrol and diesel account for two-thirds of Australian fuel demands. Both are made by distilling crude oil.
Despite some hyperbole about a world without oil, most believe the future will be more prosaic: fuels made from coal, gas, shale, oil sands, hydrogen, crops and waste will be investigated, cost and carbon emissions will be considered, and new fuels will supplement and then one day supplant traditional crudes.
Meanwhile, the market for hybrid electric cars and more efficient vehicles will boom.
Australian Bureau of Agricultural and Resource Economics (ABARE) executive director Brian Fischer told a Senate inquiry last month: "It does not matter in the long term if we run out of oil … there will be an enormous ongoing increase in the demand for energy services.
"Those energy services will be met by a range of fuels. Whether it is met by oil, coal, gas or nuclear is dependent on the final prices.
"It is not inconceivable that we will see a huge electric vehicle fleet in Australia and around the world more generally, in 2050. We can generate electricity from a range of fuels, and that would give much more flexibility with our fuel mix than if we were to stick to a petroleum-based transport system."
The automotive industry echoed these views. Victorian Automobile Chamber of Commerce executive director David Purchase believes there is enough affordable oil to last for decades. But he acknowledges that a combination of factors is encouraging a shift towards alternative fuels and additives, although he believes it will take years for these changes to make a significant impact.

Former industry insider Eriks Velins has strong views on the need for governments to act quickly to encourage energy conservation. The former Shell executive believes that different forms of synthetic crude and diesel will eventually replace crude.
Despite popular belief, Australia has some of the cheapest fuels among member nations of the Organisation for Economic Co-operation and Development, thanks to friendly government policies. Mr Velins believes this has reduced the incentive to buy fuel-efficient cars.
"We now have to pay the price of those policy decisions, for it will take a good decade to upgrade our vehicle fleet," he says. "We, as consumers, did this because we had no incentives to do otherwise, an outcome of a government policy that totally ignored emerging developments overseas."
Anglo America's local subsidiary, Monash Energy (which is looking at the possibility of converting brown coal into diesel), has urged government action to prevent much higher oil prices significantly disrupting the world economy. Chief executive Stuart Lund told a Senate inquiry "clear and aggressive targets" were needed to conserve energy and develop alternative fuel supplies.
The inquiry — into Australia's future oil supply and alternative fuels — heard from Geoscience Australia's chief petroleum engineer, Denis Wright, who said that without significant discoveries, Australia had only seven years' worth of crude oil left at current production rates. The inclusion of gas condensate, with very similar properties to crude, doubles supply.
Geoscience estimates there is a 90 per cent chance that 945 million barrels of crude exist at eight known oil and gas basins, although no single find has matched the Bass Strait oilfields.
As Australia burns through its reserves, world prices remain high and oil forecasts are being rewritten. West Texas Intermediate — the most commonly quoted oil price — set a record in April of $US75.35. Last year it averaged $US56.67. So far this year it has averaged $US66.14, and last night it was trading at $US69.50.
Instability within key oil-producing countries, Iran's mixed messages about supply, concern about the accuracy of stated oil reserves, and trading by hedge funds have all kept pressure on prices.
It is these highs, rather than the "inevitable shortages", that most troubles Engineers Australia policy analyst Andre Kaspura. "Current policy does not adequately address these issues and is reflective of circumstances that are no longer relevant to this country — circumstances in which supply was bountiful, we had clear-cut security of supply and we had cheap prices," he told the inquiry.

"For many years we were a net exporter of oil and a net exporter of energy.
"But around 2001, the situation reversed. In 2000-2001 we still had a net surplus on our balance of payments, in 2004-05 dollars, of $4.27 billion. But by 2004-05 we had a net deficit of $8.3 billion, which is a $12.4 billion turnaround in a matter of a few years."
In 2004, Australia imported 23.5 million litres of oil/condensate, and exported 17.5 million litres. This year, ABARE forecasts Australia will import 24.6 million litres and export 16.8 million litres.
When Australia does run out of crude and if it relies entirely on oil imports, exports of coal and gas would need to double to make up for the hit to the balance of trade, Macquarie Bank economist Richard Gibbs told The Age.
"It is not sustainable," he said. "We need to be looking at alternatives, otherwise imports will become a dead weight. I think the debate (about the future of oil) is at a crossroads."
A failure to acknowledge quickly the long-term and exponential rise in demand generated by India and China is why, Mr Gibbs says, so many failed to predict a sustained oil price hike.
On the flipside, the longer and higher the fuel price runs, the more it encourages developments in synthetic and biological fuels, and more fuel-efficient transport.
"One form of emerging technology that has attracted increasing interest … is the hybrid motor vehicle," ABARE has said.
Hybrid cars have a petrol-fuelled engine and an electric battery and can reduce fuel use by up to 60 per cent. But these vehicles are more expensive than conventional cars, and have a reputation for sluggishness. But 211,875 hybrids were sold in the US last year, a 25-fold increase from the 8350 sold in 2000, according to market research firm JD Power & Associates.
"We expect that number to increase to approximately 275,000 this year and to more than 740,000 by 2010," said JD Power director John Tews.
But just 354 hybrid cars were sold in Australia last month, taking the number this year to 957, Federal Chamber of Automotive Industries figures show.
But alternative fuels are attracting the most interest. According to Dr Fischer, coal can be liquefied at $US40 a barrel, oil sands at $US30 a barrel, and shale oil at $US70-95 a barrel. All can be used to make synthetic petrol or diesel.
Renewable fuels, made from crops and animal and plant waste, are becoming more popular partly because they are more economically viable as the oil price rises, and partly because of the green credentials.

But the extent of their use will be weighed against the limited arable land here and the environmental costs, for example, of taking palm oil from countries that are tearing down rainforests to grow the palms.
Already global ethanol and biodiesel production have doubled between 2000-05, according to Worldwatch. This compares with a 7 per cent increase in oil production.
And just this week, oil major BP announced plans to spend $US500 million ($A677 million) on a biofuels research laboratory.
With all this in mind, biofuel hopefuls swarmed on to the Australian Stock Exchange in recent years, thanks in part to a target set by the Howard Government last year to produce 350 million litres of biofuel by 2010. In Sydney, Len Humphreys, who heads Australian Biodiesel Group — listed on the Australian Stock Exchange a six months ago — believes biodiesel will be a significant component among alternative fuels that Australian drivers will embrace in coming decades.
But governments have yet fully to acknowledge the pressing problem of reliance on oil and of sustained high prices, Mr Humphreys says. "The proof is at the petrol pump," he says. "It's a bit like Alcoholics Anonymous — we need to stand up and say we are addicted to fossil fuels, and then we're halfway to solving the problem."
He believes the biodiesel industry will also resolve the issue of competing with food crops for arable land, by switching to non-edible feedstocks that can grow on marginal land.
On the other side of the country, Perth-based hydrogen energy hopeful Eden Energy this week listed on the stock exchange after raising a smaller than expected $8.4 million to investigate technology aiming to promote "hythane", a mixture of hydrogen and gas, which could provide another alternative to petrol.
Nearby, in a Perth industrial district, Tony Middleton and his 31-man team at Advanced Engine Components are seeking to take advantage of opportunities further up the chain. Since listing in 2000, the company has spent $27 million researching ways to convert Australia's fleet to natural gas.
The company has pinned its hopes on components to retrofit engines to natural gas. So far, 35 Perth buses and 600 in France are using the system.
In Victoria, Shell is looking at buying into Anglo America's Monash Energy project, which is researching the potential of the Latrobe Valley's vast brown coal reserves.
Monash Energy is trying to prove it can liquefy the notoriously greenhouse-intensive brown coal. If this works at an affordable price, a $5 billion energy complex could be built within a decade.