THE DEFINITIVE TRUCKING SITE

April 2008

THE OIL AFRICA 2008 – oil, gas and petroleum conference – that took place in Cape Town during March this year had as its theme ‘Managing Change in African Oil & Gas Supply’. This could not be more appropriate at this time when South Africa, the region and indeed all of Africa is facing daunting challenges in how best to deal with the high price of diesel and petroleum products and the much publicised, even scary reporting, around declining access to crude oil. Uppermost in most minds, especially those dependent on operating a reliable and cost-effective transport operation is likely to be: “How high will the price go and for how long will it remain high? How serious is the supply side and what can we do not to run dry?” With these forbidding questions at the top of his mind, FleetWatch correspondent Max Braun set out to tap into as many presentations, views, opinions and discussions at the conference that he could reasonably deal with.

The price of fuel – why is it so high? What needs to happen for the price to come down? Will it come down – soon or ever? These are questions that delegates were asking and hoping for tangible answers. 

Two excellent presentations addressed the vexing questions around price. These were delivered by Eduardo Lopez, senior analyst at the International Energy Agency (IEA) in France and Simon Ratcliffe, chairperson of the Association for Peak Oil in South Africa. 

Frustrating as it is, Ratcliffe says nobody can give a definitive reason why or what drives the crude oil price. He has a neat way of illustrating some of the key cost drivers. These include:

The above factors can be debated and argued as to how much influence each or any combination of these factors has at a particular time. The weight of these factors is influenced by different perspectives such as market and geological considerations and political expediency or lack of will. 

Forecasting problems

Drawing attention to forecasting problems – whether short, medium or long term – Lopez tends to complement this view from a different perspective. Refining capabilities need to be defined in terms of the fuel specs and type that are in question. It is not a simple question just about refineries. He makes the point about the atrocious waste of petroleum products in China and many Middle East countries where heavily subsidised fuel is abused and wasted. Two interesting examples are people in some of these countries letting the air-conditioning run while away on holiday. The other is the need for Iran to ration fuel to curb wasteful use of very low priced petroleum products which its people are paying for. 

With such questionable consumption assumptions to cope with, reliable models for better forecasting is a huge challenge for the IEA and other credible organisations. 

On the assumption that prices are not going to come down, Sweden as well as several UK and US towns, have taken the decision to undertake the transition to oil freedom. This is a tough act to tackle when you consider that worldwide transport accounts for 57% (2006 figure) of the total crude oil consumption and that biofuels have been mandated to provide no more than two percent of global requirements by 2012. 

Availability and Location

Looking ahead trying to establish some easy to understand projections, claims or opinions as to how much crude oil lies in reserve and the likelihood of new major finds can be as frustrating as trying to formulate a simple and basic understanding of what, who and when drives the price. 

A most compelling presentation by Chris Skrebowski, the highly respected researcher at the Energy Institute in the UK and editor of the Peak Oil journal, provides a comprehensive and innovative overview of this vexing question that could easily be described as a conundrum. Skrebowski addresses the question: “How close to peak oil are we?” 

To make best use of the available space, the detail of a few of Skrebowski’s slides follow. If you want more detail on this huge topic, go to the “Peak Oil” website where you will find a minefield of current and recent information. 

What is Peak Oil?

• The point when further expansion production becomes impossible because 
• New production flows are fully offset by production declines (depletion) 
• You never run out of oil, you do run out of incremental flows 
• The world needs product to support growth 

BP statistics show Peaks already happening 

• OECD production peaked in 1997 and has declined by 2 million barrels per day 
• Non-Opec, non-FSU* peaked in 2002
• North America/Mexico peaked in 1997
• North Sea – UK/Norway/Denmark peaked in 2000, 1,2 million b/d 
• Around 25 significant producers in decline
• About 35% of global production in decline

Practical realities

• Consumers need deliver flows
• Reserves are only useful as flows
• Peak oil is when flows can’t meet the required demand
• Worry about flows not reserves
• Many talk of reserves and forget about flows 

Seven key pieces of evidence suggesting we are close to Peak

• Falling discovery rate, few large discoveries
• Increasing number of countries in sustained depletion
• Companies struggling to hold production 
• Non-geologic threats to future oil supplies
• The current lack of incremental flows
• Few countries with real growth potential
• Sustained high oil prices

“When global production falls that’s when loss of output from countries in decline exceeds gains in output from those that are expanding,” is why peak will be earlier than most people suspect, says Skrebowski. 

There are presently some 800 million vehicles in the world. Predictions are, if the present rate of growth in consumption continues, global consumption will rise to 50 000 gallons per second (US gallons). This is clearly unsustainable if even achievable. Worldwide this level of demand cannot be met. 

Whether we agree or not with such predictions and forecasts, it is very clear that transport in general and road transport in particular must make huge changes. Experts agree that biofuels cannot do it alone but can help. 

How and when can biofuels help?

Andrew Makenete, president of the SA Bio- Fuel Association, presented a balanced overview of the role biofuels can and are likely to fulfil in the future provided the characteristics of biofuels such as environmental, social and economic impacts and nuances can be assessed and judged on their own merits in terms of industry and development.

Makenete said the tendency, particularly in Africa, only to respond to and not engage in forward planning initiatives – compounded in Africa by big solutions rather than comprehensive solutions – has meant that Africa lags behind the world in the promotion, development and utilisation of biofuels. Rising food, commodity and energy prices present different, yet challenging, threats and opportunities, he said. 

There are contradictions in finding a way forward and countries have their own entry points. In the USA, it is energy security and in the EU, it is the impact on climate change. In Malawi and other African countries, it’s the BOP and related issues. 

“There is also resistance and reluctance and global concerns based on founded and unfounded ethical beliefs and prejudices that muddy the waters. Buy-in across the whole socioeconomic and political spectrum is important, yet lacking,” says Makenete. 

To this he adds the important point that biofuels are quite wrongly perceived to be a replacement for liquid fuels not an enhancer or supplement. What then are the key drivers of the biofuels industry, globally?

• Potential to improve energy security 
• Potential to improve and contribute to climate change mitigation
• Lack of global markets for surplus agricultural production
• Global investments – more than 100 refineries built in the US alone
• Realignment of global commodity prices. Reduction in greenhouse gases and emissions 
• Poverty reduction in rural areas.

Our country plays an important role in most aspects of the oil, gas and petroleum industries and is well placed to fulfil an even larger, more vital leadership role in the future. Several of our African neighbours – near and afar – are engaged in a variety of exploratory projects, many of which are close to doing the deals that will bring their oil or gas finds into production. This will be dependent on their respective abilities to attract the vast investments and specialised skills needed to achieve their objectives. 

With its four refineries and a fifth on the cards with Petro SA, the country is in a good position to participate in the fortunes that lie ahead. However, it was Ghana’s National Petroleum Corporation’s director of operations, Thomas Manu, who reminded us that it is for governments of potentially oil and gas rich countries to manage local content, revenue streams and development of the industry in a way that determines whether their participation in this dynamic industry becomes a blessing or a curse. 

From a South African perspective, the local industry holds world leadership in GTL and CTL technology and already produces a significant percentage of its liquid fuels needs, making us relatively better off in terms of energy security than most other African countries. However, we must learn to live with high fluctuating fuel prices and become much better at how efficiently we use what we have.