Bad oil?

Posted: July 27, 2007
Section: Global Warming

Jos Dings, July 26, 2007, This news story is taken from the July 2007 edition of T&E Bulletin -- Bad oil? To some people familiar with the environmental movement, the term “bad oil” may sound odd. Isn’t all oil bad from an environmental perspective?

Everything is relative. Yes, the oil we use today is very bad for the climate. But the so-called “unconventional” oil the world is looking to use in increasing intensity is so bad for the climate that today’s oil actually looks good in comparison.

Unconventional oil is one of those terms that was broadly unknown until a year or two ago, but it is now becoming better known. It denotes oil taken from sources that are not easy to reach. A range of authoritative reports has been published over the past months on the future of oil from, among others, Wood Mackenzie, the International Energy Agency, and the US National Petroleum Council. All these make it crystal-clear that, although the world is not running out of oil reserves, within a foreseeable time “normal” oil production will flatten, and all the extra supply will come from unconventional sources.

The best-known examples of unconventional oil are Canada’s and Venezuela’s “tar sands” which require the oil to be “cooked” out of the sand. The amount of CO2 emitted for producing petrol or diesel from such oil is roughly double that in case of normal oil. Even more worryingly, the US and especially China are deadly serious about converting coal into oil, a technique first used by Germany in World War II and subsequently by South Africa during the apartheid boycotts. This multiplies CO2 emissions from oil production by seven, thereby roughly doubling well-to-wheel emissions compared with a litre of normal oil. The economic viability of exploiting tar sands and converting coal to liquid is subject to a lot of debate, but there seems to be an understanding that, at oil prices over $40 a barrel, both are attractive.

People who do not think this is a very serious problem usually say two things.

First, they say that unconventional oil has only a very small share in total oil production. Apart from the fact that this share will rise dramatically, the politically relevant question is not what the share of unconventional is in average oil production, but what its share is in new or marginal oil production – as this is the oil use that our policies will affect. The studies mentioned above are clear; for example, Wood Mackenzie says that all the world’s extra oil supply is likely to come from unconventional sources within 15 years.

Second, they say that China and the US do whatever they like, and that we cannot do anything about that. Leaving aside the fatalism of this attitude, it is again untrue. We can do two things to make the economics of unconventional oil less attractive:

• We can set a carbon standard for transport fuels, which is what the EU and California both proposed in January. This will give low-carbon fuels a price advantage and high-carbon fuels a price penalty.

• Maybe even more fundamentally, we can cut our oil demand, which currently stands at 20% of the world’s total. This will have an obvious impact on marginal oil production, but it will also reduce oil prices and thereby the economic attractions to move into unconventional oil. An indicative calculation suggests that if we can reduce Europe’s demand by 10%, we might already reduce the oil price by 10%, greatly reducing the economic attractions of unconventional oil.

The threat of unconventional oil is underestimated by many, and seen as unmanageable by others. Politicians should remember that they can help when they vote on Europe’s car fuel efficiency and on low-carbon fuel standards, two measures that can make a big contribution to reducing demand for bad oil.