ODAC Newsletter - 12 March 2010

Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.

What do you do if you're an energy consultancy that finds itself on the wrong side of the peak oil argument just as much of the oil industry and the rest of the world embraces the idea? The solution devised by eternal optimists IHS CERA, hosting a conference in Houston this week, is to sidestep this embarrassing development by simply rebranding the problem: 'peak demand'. However, as analyst and journalist Chris Nelder explains this week, that peak demand actually looks remarkably similar to peak supply. Demand and supply are always in lock-step, and peak demand won't be the cause, it will be the effect of a permanently high-cost, dwindling supply.

At first glance, IHS CERA's views on the US shale gas revolution - outlined in a report published this week - look better considered. They discuss not only the unexpected size of the resource, but also some of the practical and environmental risks. But they appear to miss some major drawbacks.

One issue is how much of the resource can actually be produced, and at what rate. This is a relatively new technology which has achieved dramatic increases in gas production in a short time, but well decline rates are high, so it is unclear how long such growth can be maintained. The jury is also currently out on whether the success with the technology in the US can be replicated in more densely populated areas like Europe.

More fundamentally, it is unlikely the world can afford to burn much if any of its unconventional oil and gas resource and hit climate targets. Modelling by Jim Hansen, director of the NASA Goddard Institute, and Pushker Kharecha of Columbia University, shows that if we burn all the world's conventional oil and gas – which must be overwhelmingly likely – we could still hold atmospheric CO2 to 400-450 parts per million and temperature rise to less than 1°C above the present – rather than pre-industrial – levels, provided we progressively eliminate coal emissions by 2030 and avoid emissions from non-conventional oil and gas altogether. If we burn the unconventionals, we can kiss all that goodbye.

For shale gas to benefit the climate, even in the short term, it would have to displace more polluting forms of generation like coal. But in the absence of tough policy, this seems unlikely, and shale gas consumption will turn out to be additional, and so raise overall emissions rather than cut them. CCS is in its infancy, unlikely to be installed to all coal fired stations, and in any case can never be 100% efficient – it's physically impossible – so there will always be emissions from CCS plants. All in all it's hard to see a boom in shale gas being compatible with achieving climate targets.

In other news this week, while the political fencing match between Washington and Tehran over the latter's nuclear programme continues, the prospect of sanctions looked more likely as Shell joined Vitol, Trafigura and Glencore in ceasing petrol supplies to Iran. Iran is still looking to China for protection against potentially more damaging UN sanctions. It remains to be seen where Beijing feels its interests lie.

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