The future of oil consumption in the UK: Why electric cars are appearing on the market now

The future of oil consumption in the UK:
Why electric cars are appearing on the market now

Alister Hamilton (Electric Ali)

The Renault Range of Electric Vehicles (Image: Renault)
The Renault Range of Electric Vehicles (Image: Renault)

In my first blog post on this website, I took a brief look at UK fossil fuel production history. As the UK had recently become an oil importer again, I then considered oil exports to the market as the UK will have to acquire oil from those markets in order to continue with business as usual. Now consider what might happen to the availability of oil in the UK in the future. This should help explain why electric vehicles are appearing on the market and why they are appearing now. It should also help to explain why we are in for nothing like “business as usual”.

UK oil production has been in steep decline since production peaked in 1999, with production in 2012  less than one third of the 1999 peak – a production fall of two thirds in just 13 years. Recent production declines have been particularly steep and 2012 was no exception, with a 14.3% decline. While there has been recent increased investment that may produce a short term “bounce” in UK oil production, it is reasonable to assume that production will continue to decline. The average decline rate in the period 1999 to 2012 was 8.2%. In order to model what might happen in the future, let’s assume a more benign future decline rate of 7%.

UK oil consumption has also been in decline since oil prices started to rise in 2005. The reason for this price rise was explored in a previous post.  The average UK oil consumption decline rate was 2.6% in the period 2005 to 2011. Again, in order to model what might happen in the future, let’s assume a slightly lower future oil consumption decline rate of 2%.

Using data from the BP Statistical Review of World Energy until 2011 and then projecting production and consumption trends out to 2030, future UK oil imports (Figure 1) can be estimated.

Figure 1: UK Oil Production, Consumption and Imports: A Projection based on current trends (Image: A Hamilton)
Figure 1: UK Oil Production, Consumption and Imports: A Projection based on current trends (Image: A Hamilton)

As oil production is currently less than consumption and the assumed future rate of decline in production (7%) is greater than the assumed future rate of decline in consumption (2%), imports of oil should increase. If the decline in consumption is less than 2%, or if consumption is flat or rises, the UK will seek to import more oil. A production “bounce” may ease the situation, but this is likely to be temporary. The bottom line, is that the UK is now an importer of oil seeking to source oil in world markets. Note that the assumed consumption decline in the 2005 to 2030 period is of a similar magnitude to the oil shock induced consumption declines of the 1970’s and early 1980’s. These trends are discussed in this interesting video.

We saw in a previous post, that the amount of oil on the world markets is in decline. This is due to the combination of a production plateau since 2004/2005 by oil exporters and increased internal consumption of oil by oil exporters. When recent increased demand from China and India was taken into account, the oil on the markets “available” to everyone else peaked in 2005 and was down 12.38% by 2011. Jeffrey Brown, a Texan oil geologist has taken the concepts discussed in my previous post a great deal further. He has estimated the future cumulative total amount of oil “available” to oil importing countries other than China and India based upon current trends. We can think of this as a very, very large fuel tank out of which all future oil imports will be drawn for all countries other than China and India. Jeffrey Brown estimates that this tank now had 87 GB (giga-barrels) left in it post 2011.

OECD countries will seek to consume most of the “available” oil on the market in future. In 2010, OECD countries imported 28.49 million barrels of oil per day. Even if we assume a 2% per annum decline in oil imports for this group of countries out until 2030, then they would still seek to import a total of 149 GB of oil in the 2013-2030 period.  That’s 71% more oil than is in Jeffrey Brown’s very, very large fuel tank. The UK is part of the OECD and, based upon my projection in Figure 1, will seek to import 4.9 GB of oil in the 2013-2030 period, or 5.6% of the oil in the tank.

Given that there is not enough “available” oil to satisfy OECD demand in the 2013-2030 time frame even when demand is falling,  competition for the remaining “available” oil will increase. This is likely to increase price. Increased oil prices are likely to slow economies, creating further recessions which in turn may ease pressure on the oil price. Oil prices are therefore likely to be volatile. Reduced oil consumption will tend to cause economic contraction.  Since the financial system needs growth to remain in good health, the stability of the financial system will come under threat. Financial collapse may result in an oil price collapse in a world of plentiful oil that no one can afford to buy.

But now there is every indication that the production plateau that oil exporters have been on since 2004/2005 cannot be maintained for very much longer. Russia for example is the second largest oil exporter with 7.3 million barrels per day on the market in 2011. Looking at Russian oil production using BP data (using this tool) tends to confirm the opinion of many that a Russian production peak and decline is imminent. Projections by Professor Kjell Aleklett from the University of Uppsala, available in his book “Peeking at Peak Oil” indicate that Russia will cease to be an oil exporter by 2038 (in his most likely scenario). Similarly, a number of projections predict that Saudi Arabia, the world’s largest exporter (8.3 million barrels per day in 2011) will cease to be an oil exporter at all by the mid 2030’s due to increasing internal demand for oil.

In 2011, Russia and Saudi Arabia produced 25% of the oil on the export market. The next largest exporters in 2011 were UAE, Iran and Kuwait with around 2.5 million barrels per day each. It is unrealistic to expect production declines in Russia and increasing consumption in Saudi Arabia resulting in decreased exports to be fully offset by increased oil exports from Iraq or by production flows from non-conventional sources (shale oil, tar sands etc) in the USA, Canada and elsewhere. And when Russia enters decline, it will not be the only country in production decline and Saudi Arabia is not the only oil producing country with rapidly increasing internal oil consumption.

The UK Industry Task Force on Peak Oil and Energy Security which includes the companies Arup, Buro Happold, Scottish and Southern Energy, Solar Century, Stagecoach Group and Virgin have been warning (since 2008) of upcoming tightness in the oil markets and a peaking of world oil production in the middle of this decade. There are associations for the study of this phenomenon, for example the Association for the Study of Peak Oil and Gas (ASPO).

The upshot of all this is that, unless there is some dramatic change, the UK will continue to be forced to function with less and less oil each year. And that oil is likely to be more volatile in price, potentially unaffordable, rationed by price or by government and ultimately unavailable. In the end, as the oil export market dries up, the UK will have to rely on indigenous production, what there is of it. While an accurate prediction for future UK oil supply is not possible, the trends in the data are crystal clear.

The government will want to keep the economy and public transport running, basic services operational and food in the shops. Oil will be prioritised for these purposes in an increasingly faltering economy. Discretionary use of liquid fuels – petrol and diesel for personal transport and recreational use will be squeezed.

The obvious solution to a liquid fuels shortage is electrification of transport. As there are no realistic alternatives to jet fuel, air transportation will go into decline. Expect to see more electric cars – the liquid fuels crisis outlined here is the reason electric cars are beginning to appear on the market now. Public transport will replace personal transport. Railway services to remote communities whose services were cut to make way for the motor car will be restored (the Borders Railway restoration project is a fine example of this). And expect to see electrification of more railways. But prepare for hard times as oil is the lubricant of the modern economy.

However, the problem with running an economy on electricity is that you need to be able to generate electricity in the first place. In the UK, a lot of electricity is generated by burning natural gas. And just like oil, natural gas is a finite resource. UK natural gas production peaked in 2000. World natural gas is predicted to peak in the 2020-2030 timeframe or even earlier. And before you say shale oil and shale gas are the answer, read this report and ask yourself who is likely to benefit from shale gas production in the UK?