Eni Chair in Competitive Dynamics and Global Strategy LUISS Guido Carli Masters in General Management Economics and Management of Energy Business Term 1 2011/12 Professor John A. Mathews Eni Chair in Competitive Dynamics and Global Strategy Module 8: Fossil fuels

Future for fossil fuels Peak oil, peak gas, peak coal? The oil business – and its greening Carbon capture and storage; tar sands, shale oil etc  Readings: Hubbert M.K. 1956. Nuclear energy and the fossil fuel, Drilling and Production Practice, American Petroleum Institute. Deffeyes, K.S. 2001. Hubbert’s peak: The impending world oil shortage, Chapter 1. Höök, M. et al 2010. Validity of the fossil fuel production outlooks in the IPCC emissions scenarios, Natural Resources Research Höök, M., Hirsch, R. and Aleklett, K. 2009. Giant oil field decline rates and their influence on world oil production, Energy Policy Friedrichs, J. 2010. Global energy crunch: How different parts of the world would react to a peak oil scenario, Energy Policy  Case: Petrobras

Economic Sustainability Challenge: Coal Price Index in $/ton 06.2001 06.2004 06.2002 06.2003 Source: globalCOAL

Where does Peak Oil enter the argument? The finite character of oil supplies (and gas and coal) could be the single biggest factor limiting cumulative carbon emissions to 1 trillion tonnes Peak Oil – reaching the 50th percentile – i.e. half way Point is that the ‘second half’ of the oil extraction process is likely to be a lot more difficult and a lot more expensive than the first half Widespread agreement that ‘Peak Oil’ is now imminent – or has already happened (Deffeyes)

Did oil peak in 2005 (Deffeyes)? Mikael Hook PhD thesis Uppsala University 2010

Has oil reached a plateau 2005-2010? Mikael Hook PhD thesis Uppsala University 2010

Influence of giant oil fields: Discovery peaked in 1960-69 Mikael Hook PhD thesis Uppsala University 2010

Peak Oil (2) Major reports from Military think tanks (e.g. US and Germany in Sep 2010) s e p t e m b e r 2 0 1 0 Fueling the Future Force Preparing the Department of Defense for a Post-Petroleum Era By Christine Parthemore and John Nagl

è sempre più difficile e costoso Estrarre petrolio è sempre più difficile e costoso

Resource intensity of industrial era Advertising campaign waged by Canadian govt: Athabasca tar sands

Peak Oil Discoverer: Dr. King Hubbert 1903-1989 Shell Oil Geologist/ Petroleum Scientist 1949 – projected short historical oil period Triggered by 1930 U.S. discovery peak 1956 – predicted 1970 as U.S. Peak Oil year Came as predicted 1969 – predicted World Peak Oil year 2000 1970-80 demand decline delayed it

Hubbert’s peak (US, Norway)

The facts: ASPO

The peaking of oil supplies – by country

Example: Decline of Norwegian North Sea oilfields Mikael Hook PhD thesis Uppsala University 2010

First mention of ‘peak oil’ in international press: May 24, 2002 Oil Experts Draw Fire for Warning Fri May 24, 6:38 PM ET By BRUCE STANLEY, AP Business Writer Global supplies of crude oil will peak as early as 2010 and then start to decline, ushering in an era of soaring energy prices and economic upheaval — or so said an international group of petroleum specialists meeting Friday. They hope to persuade oil-dependent countries like the United States to stop what they view as a squandering the planet's finite bounty of fossil fuels. "There is no factual data to support the general sense that the world will be awash in cheap oil forever," said Matthew Simmons, an investment banker who helped advise President Bush (news - web sites)'s campaign on energy policy. "We desperately need to find a new form of energy." Matt Simmons, died Sep 2010

What about coal? Mikael Hook PhD thesis Uppsala University 2010

Peaking of coal: UK, Germany, Japan Mikael Hook PhD thesis Uppsala University 2010

Coal: logistic peaking projections Mikael Hook PhD thesis Uppsala University 2010

Peak coal in 2020-25: Standard logistic projection Mikael Hook PhD thesis Uppsala University 2010

Peak coal: Optimistic logistic projection (2040) Mikael Hook PhD thesis Uppsala University 2010

Resource intensity of industrial era

Summary The finite character of oil supplies (and gas and coal) could be the single biggest factor limiting cumulative carbon emissions to 1 trillion tonnes Peak Oil – reaching the 50th percentile – i.e. half way Point is that the ‘second half’ of the oil extraction process is likely to be a lot more difficult and a lot more expensive than the first half Widespread agreement that ‘Peak Oil’ is now imminent – or has already happened (Deffeyes) ‘Downside’ of peak oil curve will see dirtier, more costly fossil fuel alternatives emerge A dangerous time for a society hooked on fossil fuels

Professor John A. Mathews LUISS Guido Carli Masters in General Management Economics and Management of Energy Business Term 1 2011/12 Professor John A. Mathews Eni Chair in Competitive Dynamics and Global Strategy Module 8A: Oil and the Economy 25

Oil and its influence on the wider economy Significance of oil price on the wider economy Fluctuations in oil prices and triggering of recessions Energy as a factor of production in economic analysis Readings: Jeff Rubin, Just how big is Cleveland? ICBC World Markets, Oct 31 2008 Jeff Rubin and Peter Buchanan, What’s the real cause of the global recession? ICBC World Markets, Oct 31 2008 Jeff Rubin, 2009. Why your world is about to get a whole lot smaller: Oil and the end of globalization. NY: Random House.

Economic recessions and oil price What’s the real cause of the global recession? Jeff Rubin and Peter Buchanan, ICBC World Markets, StrategEcon, Oct 31 2008

Recessions 2009/10 – Wall St-induced global recession 1990/91 Gulf War recession 1981/82 Iran crisis recession 1979/80 Second OPEC oil price shock recession 1973/75 OPEC oil spike recession

Recent oil spike vs. previous spikes: Bigger impact expected in 2009 What’s the real cause of the global recession? Jeff Rubin and Peter Buchanan, ICBC World Markets, StrategEcon, Oct 31 2008

Economic recessions and oil price (2) Why hasn’t the jump in oil prices led to a recession? Federal Reserve Board San Francisco Economic Letter, Nov 18, 2005