Analysis

Why the government thinks we need Arctic oil (and why it's wrong).

Charlie Kronick
Charlie Kronick is a senior climate advisor for Greenpeace
License: All rights reserved. Credit: © Getty Images

When does the narrative become more important than the reality upon which that narrative is based?  Certainly this is frequent, but especially when the subject is energy – particularly oil.   

In the response to the report and recommendations of the Environmental Audit Committee on drilling for oil and gas in the Arctic, the Government has argued against supporting a moratorium on Arctic drilling and bizarrely cites research backing its commitment to a transition to a low carbon economy as it’s main reason.

It claims IEA  projections in its 2011 World Energy Outlook “450 Scenario” – the one which should limit catastrophic climate change - for increased oil demand in 2035, mean on-going oil and gas exploration in the Arctic is needed.

But this response failed to take into account the changes reflected in the World Energy Outlook 2012 – which looks at both global oil supply and demand in 2035 under the “450 Scenario”, a scenario which still gives just a 50% chance of staying below a 2 degree increase in global average temperatures.

These two arguments in the Governments response – that globally we’ll run out of production relative to demand, and that the need for energy security requires Arctic production -  are not supported by the IEA latest update – which seems to have passed them by.

Further, data in the 2012 WEO suggests that oil consumption in the 450 scenario could be met entirely by currently producing and already discovered fields, with no need to go exploring in the far north. 

Global oil demand that would justify on purely economic terms exploitation of Arctic oil reserves would have a catastrophic impact on the climate, leading to global average temperature increases of over 6 degrees C. 

The 2012 WEO fundamentally undermines the claim of the Government that Arctic oil exploration and production will be required to meet both global and UK oil demand over the period to 2035.

Global oil demand under the 450 Scenario is 79 million barrels/day in 2035.

Production figures in the WEO 2012 indicate that world oil supply – a combination of existing production – plus fields yet to be developed, but already discovered  - will meet that demand (Table 3.4).

Just to be crystal clear this does not include Arctic fields yet to be discovered. In WEO 2012, the Arctic is explicitly described as “undiscovered but technically recoverable”, based on the US Geological survey estimates, the widely used justification for exploration of the Arctic for oil and gas.

Further, the IEA WEO 2012 expresses scepticism that Arctic production will make a significant contribution to global supplies by the 2035: 

“In view of the technical and environmental challenges and high cost of operating in extreme weather conditions, including the problems of dealing with ice floes and shipping in water that remains frozen for much of the year, we do not expect the Arctic offshore to make a large contribution to global oil supply during the Outlook period [2035] (Box 3.4, P110).”

The only circumstances under which Arctic resources would be required to meet global oil would lead to far greater temperature increases than those of the 450 scenario.

Projections for oil production in addition to those in the WEO suggest even greater increases in productive capacity from our current reserves.

What that means is that drilling in a new and extremely expense area like the arctic Arctic is increasingly unlikely to play any role in a transition from current fossil fuel consumption to anything resembling a low carbon future.

The Belfer Institute at Harvard University have predicted that oil output should grow from the current 93 million barrels per day to 110 million barrels per day by 2020, the biggest jump in any decade since the 1980s.

What’s more, this increase represents less than 40 percent of the new oil production under development globally: more than 60 percent of the new production will likely reach the market after 2020.

The implications for the climate of a global oil market that where demand could possibly justify that level of production are stark:  in the WEO 2011, the trajectory for oil demand versus projected temperature increase is clear: 

Scenario

Oil Use

Predicted Average Global Warming

2010 Global Oil Demand

86.7 million b/d

0.8 degrees C (actual)

2020 – IEA Current Policies

94.6 million b/d

6 degrees C

2020 – IEA 450

88.1 million b/d

2 degrees C

2020- Maugeri forecast oil production capacity

110.6 million b/d

>8 degrees C?

 

 

 

 

There, therefore, a contradiction between stated UK Government ambition to meet a 2 degree climate target, and willingness to support oil company ambition to exploit the Arctic resources as expressed in the Government response to the recommendations of parliament’s Environmental Audit Committee.

And there is an emerging view from a variety of sources both within the oil industry  and the financial industry which supports oil industry activity – including Credit Agricole- that oil exploration in the Arctic is not supportable. 

Reductions in demand for oil, whether in support of a policy to limit the impacts of climate change, or to reduce dependence on expensive and volatile imports or simply to improve energy security – all publicly stated Government ambitions – would lead to a reduction in oil prices and a subsequent loss of market capitalisation for oil and gas companies, such as BP, Total, Royal Dutch Shell and Statoil. , with high priced projects, such as those proposed for the Arctic most at risk.

Such impacts on the global oil and gas industry will lead to conflict between the overlapping spheres of a sustainable climate policy, domestic energy and transport policy (based on chasing fuel supplies rather than a sustainable energy system) and a political economy with seemingly unbreakable links to the vested interests, and curious logic, of some in the fossil fuel supply industry.  

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Great summary of a complex situation - fine work!

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