Cornwall-Newquay Airport Expansion-The Case Examined-Elizabeth Baines- Chapter 3

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Newquay Airport Expansion:

The Case Examined (Revised
Edition)

A report by Elizabeth Baines

Commissioned by Groundswell Cornwall

© Groundswell Cornwall 2007

www.groundswellcornwall.org

Chapter 3:

Flying in the Face of Resource Depletion:

Peak Oil and the Aviation Industry

The
term Peak Oil refers the maximum rate of the production of oil in any area
under consideration, recognising that it is a finite natural resource, subject
to depletion.

Colin Campbell, Association
for the Study of Peak Oil and Gas (ASPO).

Summary

The term ‘peak oil’ has been coined to describe the point at
which the extraction of oil peaks. There are now 60 countries in the world
where oil extraction is in decline. Others will follow shortly. (3.1, 3.2)
Despite increasingly efficient technology, oil discovery peaked
globally in the 1960s. There are no large oilfields left to discover.
(3.2)
We will soon reach, or have already passed, a ‘peak’ in our rate
of oil extraction. Many authoritative voices suspect this point is now.
Following this peak, oil supply will begin to fall and will be outstripped
by demand. The price of oil will escalate. The price of all commodities,
transport and national services will rise dramatically. (3.1, 3.5)
The cost of oil has risen inexorably over the last nine years,
and is set to continue rising.(3.4)
Our society and economy globally, in the UK, and in Cornwall, are critically dependant on
oil. (3.5)
As the cost of all aspects of daily life increases, flying will
become financially unviable for the majority of people. The real cost of
flying will escalate along with rising oil costs. (3.6)
Investment in air travel at this time is highly problematic.
(3.6)

3.1
What is peak oil?

The supply of cheap, readily
available crude oil that is the mainstay of our global economy will soon reach,
or may already have reached, a worldwide peak in production.

Peaking occurs when half the
recoverable oil has been extracted from an oil field; it is a reservoir’s
maximum production rate. In individual oil reservoirs oil production rises
after its initial discovery, reaches a peak, and then declines. This trend is
paralleled by world oil production. As the Hirsch report states; ‘peaking means
that the rate of world oil production cannot increase; it also means that production
will thereafter decrease with time.’51

Due to our dependence on oil
for nearly every aspect of modern life, the impacts of a peak and subsequent
decline in oil production will be severe. There is an urgent global need to
decrease our dependence on oil.

Yet as China and India
enter onto the main stage of key global economic powers and oil demand from the
US
and EU continues to increase, demand for oil is soaring. The Energy Information
Administration’s International Energy Outlook 2007 forecasts that total world
consumption of energy will increase by 57% by 2030.52

3.2 Oil supply

World oil discovery peaked in
the late 1960s and the oil production rate has exceeded the discovery rate
since the early 1980s. In 2006 the oil production rate was four times
the
discovery rate.53

Out of the 98 countries
currently producing oil, 64 are thought to have passed their geologically
imposed production peak. Of those, 60 are in terminal production decline.54 Another 14 countries are
predicted to peak within the next decade.55

Of the 65 largest oil
producing countries in the world, up to 54 have passed their peak of production
and are now in decline. These include the USA, the North Sea (UK and Norway)
and Australia.56 Not only are there are no more large oil fields left to discover -
all possible areas of the globe having been explored - many of the world’s
largest oil fields have already hit a peak in their oil production.

Improvements in technology
mean that we have a much more comprehensive database concerning oil reserves
than has ever been available in the past and although uncertainties remain,
leading oil experts and geologists are becoming ever more pessimistic about our
future supply of oil.

It is highly likely that the
peak will be very soon, if it has not already passed.

3.3 How could peak oil have already passed?

Rather than a short, sharp drop in
supply, oil production peaks over a period of several years. Oil supply reaches
a plateau which it gradually rolls over as oil production goes into decline. As
an example, the following graph shows the peak of oil production in North America. This bell shaped curve is often referred
to as Hubbert’s Peak.

Figure
1: The Peak
of Oil Production in North
America.

Source:
Hirsch, Robert L., Peaking of World Oil Production: Recent Forecasts, 5th February 2007.

The global trend is predicted
to follow the typical trend for oilfields shown above. Oil production peaks
gradually before going into terminal decline; hence the consequences of peak
oil may not be felt immediately.

However, if oil has already
peaked we will feel the consequences very soon.

3.4
When will oil extraction peak?

Predicting the peak is made
difficult because of political self-interest (which can lead to misleading
information being given about oil reserves), geographical instabilities and
poor data. Although no exact date can therefore be given, high profile energy
and oil experts, amongst them the most prominent senior figures in oil supply
analysis, are increasingly warning that we are dangerously close to a peak in
our oil production or that we may have already passed it.

As far as the oil companies
and OPEC are concerned, there is no likelihood of a shortage of oil supply
either in the coming years, or possibly ever.

Cambridge Energy Research
Associates (CERA), a leading advisor to international energy companies,
governments and financial institutions, has been quoted as saying that ‘peak
oil is garbage’, whereas OPEC deny peak oil altogether.57

This is unrealistic given
that we know oil is a finite resource; oil production must peak and decline at
some point.

Many of the ‘official’
forecasts place the peak at 2030 or later. However the Association for the
Study of Peak Oil and Gas (ASPO) points out that these predictions are
‘invariably based upon secretive and/or discredited sources such as OPEC
figures, oil company reports or politicised government agencies.’58

The US Energy Information Administration (the US
Department of Energy) is one such agency.

Some of the most prominent
figureheads in the oil industry that have predicted an imminent peak in oil
production are:

Colin Campbell, a retired oil company geologist for Texaco and
Amoco who predicts that oil supply will fall short of demand by 2010.

Dr. Ali Morteza Samsam Bakhtiari, a senior expert employed by the
National Iranian Oil Company, who claims that oil peaked in 2006-7.

Matthew Simmons, founder and Chairman of the world’s largest
energy investment banking company, Simmons & Co. International, says
that oil is peaking now.59

Several important
institutions such as the Royal
Swedish Academy
of Sciences, the International Energy Agency (IEA), and Raymond James have
acknowledged an imminent peak in oil production.

The IEA, in their 2007
Medium-Term Oil Market Report, warned of a crunch in the oil supply by 2012:
‘Despite four years of high oil prices, this report sees increasing market
tightness beyond 2010, with OPEC spare capacity declining to minimal levels by
2012.’60

The cost of a barrel of spot
Brent crude has risen from $26.32 a barrel in September 2001 to $78.07 a barrel
in September 2007 and will continue to rise in the near future.61

It is highly likely that oil
production will begin to decline within the next five years, if not before.

3.5
Our dependence on oil.

There is no overemphasising
our current reliance on oil. According to The Community Solution, oil provides
40% of primary energy, and 95% of all transportation fuel.62

A recently published report
for Groundswell Cornwall,
The Impact of Peak Oil on Rural Communities, highlights the dramatic consequences
that an oil shortage will have in Cornwall.63

As oil supply decreases
whilst demand for oil continues to rise, the gap between supply and demand will
become ever larger.

As figure 2 on page 17 illustrates,
demand for oil will continue to increase exponentially over time regardless of
the decrease in supply. The widening gap will mean oil costs soar as people and
governments compete for ever more expensive oil.

The impact of this
discrepancy between supply and demand will include, inevitably, a sharply
rising cost of every aspect of daily life whether it be food, transport,
housing, education or health. The tourist industry will contract, as will the
economy in general, with energy shortages and increasing unemployment
exacerbating the decline.

The health service and
education will come under increasing pressure to decentralise, as will food
production and distribution.

Because of its scattered
distribution, Cornwall’s
population is heavily dependant on the car. Getting to work, school or the
hospital is likely to become much more difficult and expensive in the near
future. Access to food will likewise become difficult, especially due to the
long distance most food products travel before reaching people’s homes; as oil
prices rise, so will the price of all foodstuffs and household commodities.

The tourism sector will
suffer as a result of the increased cost of travel; people are unlikely to
choose taking a holiday over putting food on their table. Moreover, as pointed
out by ASPO…alternative fuels such as ethanol and hydrogen will have at best
only a marginal effect on addressing this problem as the necessary
infrastructure is prohibitively expensive, would take decades to complete if
ever the will existed to proceed, and the fuels themselves do not yield
sufficient net energy to make them viable.64

The real cost of everything
will rise; we will be forced very rapidly into becoming a low energy community.

3.6
What are the implications for air travel?

Airlines will be especially
hard hit by Peak Oil. As the least efficient mode of transport, less so than
cars, trucks, trains and cargo ships, air travel costs will increase much more
than alternative modes of transport in the near future.There is an immediate
need to invest in lower energy transport alternatives.

Dr. Ali Morteza Samsam
Bakhtiari, a senior expert employed by the National Iranian Oil Company,
recently set out his predictions for oil depletion to the Australian Rural and
Regional Affairs and Transport References Committee. During his hearing to the
Australian Senate, he warned of the imminent price shocks that a decrease in
oil reserves will trigger and spoke about how this will affect travel,
especially air travel: ‘Aeroplanes will be the first casualty in the system.
They are already making losses. I do not know how they can carry on because the
jet fuel is directly proportional to the increases in crude oil. It is not like
petrol. Petrol is very much cheaper because you have hidden subsidies and you
have the taxes naturally.’65

Such warnings follow the same
lines as the recent research on tourism carried out by ‘Visit Scotland’ which concludes that ‘a
tourism economy without a sustainable transport policy and system means less
tourism in the long-term.’66

The House of Commons 2003
Tourism Research Paper states that the tourist industry is ‘sensitive to the
general economic climate.’67 As the economy detracts and the price of air travel escalates, the
tourism industry is likely to suffer heavy financial losses as the market for
air travel collapses.

ASPO offers a similar
warning: High prices will decrease consumers’ disposable income and reduce
demand. Many airlines will become unprofitable or collapse. Higher fuel costs
will reduce the competitive advantage of low-cost carriers and demand for
long-haul trips will diminish.

Over the long term, the world
economy will be faced with a major shock in
which there will be social unrest, food shortages, rising unemployment
and a strong reduction in business and government activity.68

In the light of the price of
oil reaching a 10 month high in July 2007, Dr. Roger Bezdek, President of
research firm Management Information Systems, similarly voiced his opinion
about investment in aviation: ‘I think there's a real market failure here that
people simply are not aware of the impending problems here and many of these
investment decisions, several years from now, may look very foolish in
retrospect.’69

Air travel being the most
energy inefficient form of transport, investment in airport expansion at this
time is ill advised whether in Cornwall
or elsewhere in the country.

The airline industry is
particularly susceptible to rises in the cost of oil with its reliance on
oil-based jet fuel for which no alternative exists.

Chapter 3:

Flying in the Face of Resource Depletion:

Peak Oil and the Aviation Industry

Sources:

51 Hirsch,
Robert L., Peaking of World Oil Production:
Impacts, Mitigation and Risk Management, February
2005, available for download:

http://www.powerswitch.org.uk/portal/images/stories/papers/thehirschreport.pdf
pp.11-2

henceforth Hirsch, PWOP.

52 Energy
Information Administration (EIA), International
Energy Outlook 2007, May 2007, weblink visited 08/07,
chapter 1, World Energy and Economic Outlook:

http://www.eia.doe.gov/oiaf/ieo/pdf/world.pdf
p.1.

53 McCarthy,
OD, p.3 sourced from “Peak Oil Primer”, Energy
Bulletin, 8 April 2006 (http://www.energybulletin.net/primer.php),
among numerous other sources.
54 The
Last Oil Shock, website by David Strahan, visited 08/07:

http://www.lastoilshock.com/map.html

55 EnergyFiles, visited 08/07: http://www.energyfiles.com/
56 McCarthy,
OD, p.4.
57 Hirsch,
PWOP, p.15.
58 McCarthy,
OD, p.5.
59 Hirsch,
PWOP, p.12.
60 The
International Energy Agency, Medium-Term
Oil Market Report, July 2007, web link visited 07/07,
available for download:

http://www.vtpeakoil.net/community/files/0007/iea20070707.pdf
p.5.

61 Energy
Information Administration, Selected
Crude Oil Spot Prices, website visited 09/07:

http://www.eia.doe.gov/emeu/international/crude1.html

62 The
Community Solution website, Peak Oil:
The World’s Greatest Challenge, PowerPoint presentation
February 16th 2006, website visited
07/07:

http://www.communitysolution.org/ppts/GreatestChallenge.ppt

63 Elizabeth
Baines, The Impact of Peak Oil on Rural
Communities, July 2007, produced for Groundswell
Cornwall, weblink visited 08/07, available for download: http://www.groundswellcornwall.org/files/u1/peak_oil_rural_communities.pdf
64 McCarthy,
OD, p.5.
65 Official
Committee Hansard Senate (Rural and Regional Affairs and Transport
References Committee), Australia’s Future Oil Supply and Alternative Transport Fuels, 11th
July 2006,web link visited 07/07, available for download:

http://www.aph.gov.au/hansard/senate/commttee/S9515.pdf p.27

66 Visit
Scotland
Research, Tomorrow’s World: Consumer and
Tourist, vol. 2, no. 1, May 2006, weblink visited
07/07: http://www.scotexchange.net/tomorrow_s_newsheet_180506.pdf
p.12
67 The
House of Commons Research Paper, Tourism,
03/73, 23rd September
2003, p.24, henceforth The House of Commons, T.
68 McCarthy,
OD, p.6.
69 Lateline
Business, Research President discusses the
economic threat of Peak Oil, 19th
June 2007, website visited 07/07: