At the end of 2009 world proven crude oil reserves stood at 1,064,000 million barrels, of which 79.6% was in OPEC member countries [1].

World oil

According to the OPEC Annual Report 2009 [2] total world oil demand in 2009 was 84.4 millions barrels per day (b/d). As the world economic growth continues, crude oil demand is expected to rise up to 111m b/d by 2035 according to the Energy Information Administration’s (EIA) International Energy Outlook 2010 (IEO) [3].

The EIA believes that oil demand will continue to grow strongly and will remain the world’s single most important source of energy for the foreseeable future. The IEO 2010 predicts that it will have a smaller share of the total world fuel mix. The reduction in oil’s market share is largely due to growth in demand experienced by other forms of energy, particularly natural gas.

The following chart illustrates oil’s large share of the energy mix of G7 countries.

Figure 1: Primary energy use in G7 countries 2009 [4]

Oil is finite in the short term as it takes millions of years to be produced by the same natural processes that produced the fossil fuels we use today. OPEC believes that it has enough oil to last 100 years and non-OPEC countries have about 20 years remaining. However using 2009 world proven reserves and with 2009 oil demand there would be enough oil for 34.5 years [2].

UK oil

Production

The UK has been a rare European net exporter of energy, particularly oil; however in the last five years the UK has become a net importer of oil.

Figure 2: UK crude oil production and trade, 1970 - 2009 [5]

Refineries

There are currently nine major oil refineries in the UK with production in 2009 of 75.22 million tonnes. In the last decade refinery throughput has steadily declined, and output has dropped by around 14% since 2000. The UK continues to be a net exporter of petroleum products despite the recent change to being a net importer of crude oil [5].

Consumption

Demand for oil and oil products has fallen in the past five years from 89.8 million tonnes in 2004 to 75.2 million tonnes in 2009, over 77% of which was used in the transport industry. Figure 3 below taken from the Digest of UK Energy Statistics 2010 (DUKES) [6] demonstrates how liquid fuels enter and leave the UK energy system.

Figure 3: UK liquid fuel industry 2009 (Million tonnes) [6]

The future of oil

Looking into the short/medium term future, oil is likely to retain a comparative cost advantage in most forms of transport due to the available technology and infrastructure. In the medium/long term, demand is critically dependent on oil availability, climate change measures and alternatives.

Oil availability

The quantity of oil available for future use is an area of great uncertainty. Statistics can vary significantly, and the ambiguous definitions and secrecy of much oil reserve data combined with the difficulty in predicting the future of demand make it almost impossible to predict exactly how much oil is going to be available.

In the 1950s a Shell employee by the name of M. King Hubbert devised a model of long-term oil production in the United States. He predicted that production of oil would continue to rise up a steep bell curve until the 1970s where oil production would peak and then decline down the other side of the bell curve. This model is often referred to as the Hubbert Bell Curve. The Hubbert Bell Curve proved true for production of US oil, which peaked and began its decline in the 1970s. Many believe it will prove true for world oil production [7].

Oil is produced naturally through a process which takes millions of years and is currently being used at a far higher rate than natural production. Thus oil is widely considered to be a finite resource that will eventually be exhausted. The point at which half the world oil reserves have been used is known as ‘peak oil’. After this point oil prices will tend to rise more steeply as production declines, making it difficult for less wealthy countries and consumers to get access to oil. As oil prices rise, alternative fuels and technologies will become increasingly viable [8].

Predicting the date for peak oil is highly contentious. Some pessimistic predictions say it has already peaked and others suggest a peak around 2020. However, most agree it will happen by 2030, with the resulting instability causing economic problems and international tensions [9].

Emissions & climate change

The industrial economy powered by fossil fuels has brought massive improvements in living standards during the past 150 years, but as a consequence the planet we live on has been changed. Greenhouse gasses that have been produced by man, including carbon dioxide (CO2) methane and nitrous oxide are changing the amount of sunlight (and the energy it carries) that enters and leaves the earth.

Atmospheric CO2 is at the highest it has been in 800,000 years and this increased level of CO2 looks likely to continue to rise unless major action is taken across the globe. If it does continue, the change in climate may be rapid and it is suggested that the global climate could be affected in many different ways, including droughts, flash floods and intense heat waves as well as the spread of tropical diseases [10 & 11].

The UK aims to be a leader in reducing climate-change emissions, with tough targets to reach over the next 40 years. The UK Low Carbon Transition Plan and the UK Renewables Strategy define a way of reducing CO2 by 34% in 2020. Further to this the aim is to reduce emissions by 80% by 2050 compared with 1990 levels as part of a comprehensive set of EU reduction targets [5]. However in 2010 the UK was ranked 25th out of the EU 27 countries for the percentage of energy produced from renewable energy sources [12]. In the UK in 2007 523 million tonnes of CO2 were emitted, 35% of which was from burning oil. In 2007 there had been a reduction of only 5.4% from 1990 levels [13] and so to reach an 80% reduction in 2050 whilst energy demand increases is a major challenge.

Alternatives

Availability of cheap oil is less certain in the coming decades, but there are a number of technologies being developed that are designed to extract unconventional sources of oil. As oil prices increase as peak oil is reached and when these technologies become relatively cheaper, unconventional sources will become much more viable. For the medium and possibly long term oil will remain an important strategic issue – but for the world as a whole rather than just the UK.

Transport is likely to remain heavily dependent on oil for the next decade at least; in 2007 more than 70% of oil in the UK was used for transport [13]. Vehicle combustion emissions have fallen considerably over the last 30 years and vehicle emissions regulations continue to become more stringent. However, in the longer term a switch to low carbon energy sources for road transport looks very likely. Electric cars are perhaps the most promising replacement for the combustion engine in the short/medium term.

Future predictions

Due to these uncertainties, predictions of future oil demand can vary widely. Each of the factors discussed above will almost certainly have an effect on the future of oil production and use, however how much of an effect is not easy to predict. Figure 4 demonstrates different future predictions of the world’s primary fuel mix in 2030. It can be seen that although reference predictions are similar, differing scenarios can make a vast difference to oil and energy demand. The International Energy Agency (IEA) World Energy Outlook [14] report illustrates the effect of a strong climate change policy (450 Policy) on world oil demand. The EIA International Energy Outlook [3] report also demonstrates a reduction in oil demand due to high oil price perhaps caused by reaching peak oil.

Figure 4: Predictions of the world's primary energy mix