Monday, 28 February 2011

Living with oil at $200bbl

I can't find anyone arguing that oil at $100bbl is not here to stay; no-one is calling it a blip, and no-one is expecting it to drop back to $40bbl. And few are arguing that it will stay at $100. Now the dreaded $200bbl is being mooted; it may not be this year, or next year, but maybe by the next election it will be with us. Our economy may still be bumping along the bottom, but elsewhere China and India are growing at up to 10% a year; tar sands and deep water wells take time to come on stream, and investments are only now being made on the basis of a stable $100bbl price level. So can we live with oil at $200bbl?

Natural gas for space heating and power will become more important. Gas is about a third the cost of oil per btu, so investment and capacity in our gas handling, storage and distribution system will be key over the next few years; CNG by sea, with a Navy to protect the trade routes, will also be critical. 

The major impact will be on travel and transportation costs. As we import over half our food, this will have a direct inflationary effect. The cost of animal feed and fertiliser domestically, dependent on oil, will also rise. Food's going to be expensive. The supermarket model, with an intensive distribution network of national depots, will cost a lot more to run, making truly local produce sold locally more competitive. 

The era of cheap low bulk value materials from China and SE Asia will be over. This will hit the cost of building products; the big European building products firm that set up a new plant in Thailand a few years ago to manufacture structural cement particle board was based on transport costs of £20/m2. At £40/m2, it won't be competitive. The same for Chinese granite, now so cheap and ubiquitous that every shopping street in England is being paved in it, and every mediocre new commercial building clad in it. Of course cement, steel, gypsum products, clay bricks and blocks and other domestic building products that are high-oil to make will also increase in cost. As will road bitumen, so expect fewer repairs. 

High vehicle fuel prices will hit car owners, rural ones disproportionately so. The cost advantages of alternative fuels - synthetic diesel, natural gas, hydrogen - will become real. Sales prospects will be bad for Landrover, good for the domestic manufacturer of a cheap volume runabout with a 750cc engine that does 60mpg.  And scooters. 

Now's also the time to buy forests. Wood chip and wood pellet burners are set to take off; currently the plant is sized for District Heating and blocks-of-flats scale, but a domestic heater using the Stirling Engine is not far away, and demand for deliveries of bagged pellets may be equivalent to the old coal deliveries in time (those still with coal cellars will be especially lucky ..)  

All in all, I think we're probably better placed than the US, with it's sprawling cities with suburbs stretching 40 miles or more, to face the crisis, but not as well placed as France. The key will be our adaptability - and we Brits have always been fairly good at that. 


Nick Drew said...

did you mean CNG, R ? (as opposed to LNG) - if so I'd be interested in your reasoning

one other pedant's point: it is possible, somewhat counter-intuitively, that if the price of oil rises, the price of bitumen goes down

that's because the really bituminous grades of crude oil (with very low yields of naphtha & middle distillates), usually uneconomic & left in the ground, will become more viable, with correspondingly more of the by-product being produced

(this is a phenomenon that often happens in the petro-chem game, e.g. after the first oil-price shock of 1973, lots of additional gas came to market in the UK - as a by-product of oil - as the N.Sea became thunderously economic, suppressing the price of gas for several years)

Weekend Yachtsman said...

"A Navy to protect the trade routes"


Cameron has just dealt with that one.

Raedwald said...

Nick - excellent point about bitumen - but if processing say Athabasca into syncrude or even direct cracking into road fuel becomes an economic process then surely it is even more so for sludgy crude previously left in the ground? Won't even the heaviest fractions be in demand as feedstock for syncrude?

I'll go back and check my NG source - the point generally was that it's cheap compared to oil as a source of heat and power at the moment

Blue Eyes said...

Britain is more self sufficient in food than might be apparent. Just because we do import a lot of smart fruits and veg doesn't mean we could survive quite nicely on turnips, parsnips and potatoes. Mark Wadsworth has all the stats.

Nick Drew said...

R - Won't even the heaviest fractions be in demand as feedstock - yes, the heaviest fractions that can be cracked - but that will still leave more uncrackable resid available: the sludge at the very bottom of the barrel (and the even nastier stuff that comes out the bottom of a cracking process) is really only useful as asphalt

As regards NG I was only picking you up on the distinction between CNG & LNG, which are quite different. Generally speaking, CNG has yet to be proven economic for bulk shipping from distant gasfields to centres of demand (though it has small-scale uses for e.g. fuelling vehicles) - but there is a view that at high enough prices, it becomes a viable 'intermediate' technology between pipelines and LNG

(the latter, of course, is indeed economic at current prices - when the gasfield is big enough and remote enough, so that (a) it is literally worthless in situ, and (b) you can get the economies of scale to justify the billions involved in building a liquefaction plant. The idea for CNG is that it will have a role for gasfields too small to sustain LNG)

Anonymous said...

Will we have $200 dollar oil when the shale oil comes to market?

Barnacle Bill said...

How about King Coal making a comeback in this country?
We've literally thousands of tons of the stuff beneath our feet, it might make the Green's & Manmade Climate Changer's blood pressure soar, but at $200bbl it might be a case of needs must.

Anonymous said...

So, if demand and scarecity is driving the price rises (and I don't doubt this) how come there are fewer petrol stations (more than half have closed in my home town) and fewer refineries. My "local refinery", Stanlow, is operating at minimal levels and the electricity it generates (Stanlow has its own power station) now gets pushed into the grid. Shell Stanlow does have a cat-cracker, dunno if its operational right now. The bitumen plant on the North Site has been closed for years.

20-30 years ago, it was deemed that the normal fuel consumption for a normal family car was 30mpg. These days, 50mpg is normal. My Hyundai i30 2.0L diesel will do 58mpg at 60mph. Pump demand per car has gone down markedly.

As to housing, who knows?? Most modern semi-detached houses will become uneconomic to live in during our winter months, even with the best insulation. Worse than that, our energy companies are now mostly foriegn owned. So it's down to wood burners and foraging as a suppliment. Yes, France is far better placed (and I have my bolt hole lined up in the south) because half the country (the southern bit) has much more clement weather and the whole of the country is lucky enough to benefit from nuclear power, 59 stations in all, and one gigantic hydro electric station capable of generating 25% of the countries needs. Following the Suez crisis, France made a statement of intent (carried out) which Britain would have done well to follow - "never again will France be beholden to a foriegn country for its energy needs".

Look where Britain is now....

Coney Island

David C said...

You're taking it for granted that the Government and the EU will return to energy policy sanity in short order. I think the US government will get back on track a long time before the UK will; never mind about adaptability.

Delphius1 said...

Not only is China's demand for oil growing as it matures, its also already looking to the post-oil era.

It's using it trade surpluses buying into mining operations worldwide, making it well-placed to provide security of supply for itself of the vital components for rechargeable batteries, as well as copper for electronics and other "rare earth" minerals.

China is well placed for the future, unlike our own government, who it seems have a future for us as some sort of new-age hobbit, relying on "alternative" (e.g. unreliable) energy sources.