Energy sources: Oil alert bolsters case for wind

A growing sense across the energy industry that oil supply will fall short of demand has created an argument for faster adoption of wind power that only years ago would be considered laughable by many.

Not long ago, any energy industry official faced ridicule by hinting that a shortfall in oil supply posed a threat to world stability within the foreseeable future. Then in a recent newspaper article, Fatih Birol, chief economist at the International Energy Agency (IEA), raised the spectre of conventional oil production reaching peak, with dire economic consequences. This time, alongside the predictable scorn from critics painting a rosier picture of oil supplies, many analysts applauded Birol for drawing attention to the issue. Asked to elaborate, Birol says his views are only in line with last year's World Energy Outlook 2008 (WEO 2008) report by the IEA. Still, that report pointed to oil depletion occurring faster than previously thought and proclaimed: "It is becoming increasingly apparent that the era of cheap oil is over." Governments, it said, can mitigate this through "cleaner, cleverer and more competitive" energy, but "time is running out and the time to act is now". Birol's latest comments are widely viewed as a signal that the IEA is backing faster implementation of renewable energy sources.

It is not the unqualified call for renewables that the clean energy industry desires. Birol says peak production of oil can be staved off by investment in oil exploration and increased reliance on natural gas liquids and non-conventional sources of oil. But against a backdrop of mounting concern over the environmental impact of exploiting oil from sources such as the sedimentary rock shale, as well as tar sands, Birol also urges far greater efficiencies in worldwide energy demand and development of alternatives to oil products.

Demand for wind stands to rise - especially, say some observers, should electric vehicles significantly replace petroleum-fuelled products. Prices for natural gas and coal, the two largest fuel sources for electricity, have historically tracked those for oil and, when oil prices were high last year, there was already little difference between the cost of generating electricity from a new wind plant or a new gas or coal plant (Windpower Monthly, January 2009). Then oil and gas prices tumbled, placing downward pressure on wind power prices. But an energy crunch would turn the tables back in wind's favour.

A projection last year by energy research institute Riso DTU found that with oil at $118 a barrel in 2010 - between today's price of about $70 a barrel and its peak of $147 in July 2008 - costs of generated power from inland wind farms would be only slightly above those for coal and far below those for natural gas when the price of carbon credits is factored in. Coastal wind would be more competitive than both coal, whose fuel price would rise 50% above 2008 levels, and natural gas generation, whose fuel price is projected to double. Other experts see offshore wind becoming competitive when oil reaches the $150/barrel range.

"(If) we were to see much higher prices in the next few years to come than we have now, this may be bad news for the global economy and this may strangle the economic recovery," Birol tells Windpower Monthly. This could weigh on the wind sector, which during the past year has been plagued by both low power purchase prices and tight credit. Yet Steve Sawyer, secretary general of the Global Wind Energy Council (GWEC), believes the global energy profile will inevitably benefit wind, even with the upheaval an oil crunch would likely entail. "In the short run, the impact on the overall economy - the economic shocks, the wildly fluctuating oil prices - are not good for interest rates; they're not good for liquidity in banks," he says. "But, as the most commercially viable of new renewable technologies, in the big picture, it's definitely good for us."

New consensus

In its WEO 2008, the IEA warned of "a real risk of a supply crunch in the medium term as the gap between the capacity that is due to come on-stream from current projects and that (which is) needed to keep pace with demand widens sharply after 2010, squeezing spare capacity and driving up oil prices - possibly to new record highs". It also reported that its analysis of nearly 800 oilfields revealed that 580 fields comprising 58% of world crude oil production in 2007 had already passed peak production - in other words, produced less than the maximum level ever achieved in any one year. Of those, 479 were producing below 85% of their peak levels and 362 had annual production consistently less than half of peak.

The IEA estimated that the annual average decline rate worldwide for post-peak oil fields was 6.7%. Birol tells Windpower Monthly that the decline rate means "we need to bring, between now and 2030, in order to just offset the decline coming from the fields which are over peak and will be in peak, 45 million barrels per day, which means bringing four new Saudi Arabias on-stream". He adds: "And this is a huge challenge. And the challenge is even bigger if you note that a large portion of that 45 million barrels per day in 2030 is not yet identified." At 2008 demand levels, if no new fields are identified and put on-stream, and technologically enhanced methods of oil production are not employed, then conventional oil - excluding unconventional oils and liquid fuels from natural gas - will peak around 2020, he says. Aggressive policies to reduce demand, notably in transport, could delay it a few years, he says: "Peak is a function of supply and demand."

The original August interview with Birol, in UK daily The Independent, triggered a storm of commentary. One of the most widely noted reactions to the article was energy consultant Michael Lynch's opinion piece in US daily The New York Times, where he said the theory that world oil production will soon reach maximum or has already done so - a concept known as peak oil - is based on "poor analyses of data and misinterpretations of technical material". But such sceptics must now contend with a growing chorus across the energy industry sounding alarms over oil supply, not least among them oil tycoon T. Boone Pickens, who last year said he believed oil had already peaked.

"Everybody's heard of peak oil, but a number of the establishment organisations rather pooh-poohed the idea," says John Westwood of energy research firm Douglas-Westwood. "In perhaps the past three years there has been a change in attitude, and I think the IEA is one of the late bloomers to the whole concept of limitation to oil supplies." Westwood says his firm is concerned about a serious oil supply crunch due to delayed investment in oilfield development. The problem has been exacerbated by the global financial downturn that has stalled investment in oil infrastructure that would normally have occurred, he says. "So, what we're seeing is, yes, there is a depletion of oil reserves at quite an alarming rate around the world." When Westwood's company first published research on this subject in 2002, 52 countries had passed oil production peak. Last year, that number grew to 66.

Following wind

Meantime, clean energy firm Renewable Energy Systems believes production of conventional crude oil has probably already peaked or is about to do so. CEO Ian Mays expects production of all forms of petroleum - including that from shale and tar sands - to peak around 2018, with the exact date depending on how quickly the world climbs out of recession, and as it does so boosts demand.

How all this affects demand for wind also depends on the supplies of natural gas, which is commonly found in the same places as crude oil. As with oil, forecasts for when production of gas will peak vary, but Mays expects this to occur around 2030. Greater-than-expected availability in the US of "tight" gas extracted from sandstone would be offset by a bigger push towards electric vehicles, which Mays says is likely to increase demand for gas. He says that demand is likely to exceed supply in the next two to five years.

In its 2006 report, Plugging the Gap, RES argued that by 2030 there would be too little gas to fuel anticipated gas-fired power capacity, leaving a 950 GW hole in electricity generation to be filled by other energy sources (Windpower Monthly, October 2006). Today, May expects that hole to be larger. "It seems to me there is pressure for that to increase as we move from liquids for transport to electricity," says Mays. "Medium to longer term, wind will be the cheapest source of energy."

Earlier-than-expected scarcity of fuel resources could pave the way for rapid, market-driven deployment of wind power, continues Mays. Although wind would have to compete with other renewable energy sources, he foresees that wind prices will inevitably become increasingly competitive as oil and gas prices rise. Furthermore, RES believes much of the demand created for wind by the shortfall in gas will be in markets with the greatest imbalance between gas demand and domestic supply: North America and Europe are the regions with "the best potential for wind energy and renewables in general, in terms of resource, investment capacity and political momentum".

Westwood, for his part, urges a mass roll-out of new renewables capacity but believes that will not be enough. "I find it very, very difficult to come up with a solution that does not have a significant element of nuclear power in it," he says, but adds that "even that is not a quick fix", because it takes around 10 years to get nuclear online. "That's about five years for planning and permitting and five years for building. And how many nuclear stations could be built in the world in one year? You can count the suppliers of the reactors on one hand," he says.

The IEA also sees a growing role for nuclear energy, yet one ultimately smaller than that of renewables. According to WEO 2008, it foresees cumulative investment of $5.5 trillion in renewables between 2007 and 2030, of which $3.3 trillion will be in electricity generation. In 2030, it foresees nearly $200 billion of investment going into renewable fuels for power generation, several times the amount for nuclear. Critics within the renewables sector, however, complain that the IEA has still grossly underestimated potential for non-nuclear alternatives to fossil fuels (see box, page 64).

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