Impact on future energy sustainability

Peak Oil - impact on future energy sustainability.


Fossil fuels are a finite source of energy as global extraction production approach a peak; numerous consequences await the global population from economic, social and political with impacts on food reserves, water supplies and general livelihood. The populations are still blissfully unaware of the impending disaster, the time requirement for efforts to halt these effects and to make necessary adjustments very small but some but still possible.

Introduction and definition

Fossil fuels are a finite source of energy; the world's population depends on oil and fossil fuels for most of their lively hood. Economic activity of regions and countries has been measured on the quantity of fossil fuel consumed. As a consequence the world's fossil fuel reserves are already being exploited to maximum with some being depleted entirely (North Sea oil and gas fields being a good example) this trend cannot continue without a new thinking on energy consumption.

The consequences of fossil fuels are numerous, chief among being global warming which is caused as a result of the green house effect of carbon dioxide (CO2 ) emissions into the atmosphere from the combustion of fossil fuels. Phenomenon like; climate change, melting of polar ice caps, flooding, rising sea levels, seasonal changes, famine can be attributed to this effect .

In the last few year serious concerns about the future production and availability of oil and other non renewable sources like natural gas and coal have been brought in to public discussion in particular crude oil, its production seems unsustainable even in the short term frame. Even though present production rates were to increase, that increase would not be sufficient to cover the demand from developing countries like China, India, Brazil and others which brings us to the idea of peak oil.

The concept that world oil production is set to pass a peak is becoming widely accepted as fact in various circles form policy maker, financial markets, energy companies and end users. Peak oil is an instant in time when the rate of global oil extractable and production reaches a maximum, thereafter global productions enter terminal decline. Many scientists, oil producers, market participants believe that this point in time has recently come to pass or is to come in the near future. The concept was first put forward by( Hubbert MK. 1956) propose that the extraction and production of a finite resource is bell shaped and symmetrical with maximum production occurring at about half way through the available deposits. Its full mechanism is such that initially the abundance of a cheap resource leads to economic growth and further investment for more extraction however as the deposits are depleted, extraction becomes harder and poor quality resources are extracted. The extraction becomes more expensive and there for attracts less investment until the production reduces to zero.

Energy is essential to for present societies. In particular; heating and transportation system depend on oil based fuels. If the predictions are to be believed huge social and economic problems lay in waiting for the world's population as there will be hardly any time to perform the required necessary adjustments to the new reality.

The international energy agency (IEA) is an autonomous body with in the frame work of the Organisation for Economic Co-operation and development (OCED) its purpose is to act as an energy advisor to the 28 member countries of the OECD.

On prospects for oil and gas production the IEA states "the results of these analyses are intended to provide policy maker, investors, and end users with a rigorous quantitative frame work for assessing likely future trends in energy markets (IEA. 2008)

These trends seem to point out the fact that world oil exploration and production rates have passed through or set to hit maximum in the near future, the IEA's finding appear to be in correlation with various projections from national governmental bodies, international organisations and energy companies worldwide alike.

World oil production by source in the Reference Scenario

From the graph it is clear that as current oil field are beginning to show a depletion tread, while fields that we already know exits but have not been developed as yet will decrease in volume over the next 2-3 decades.

Fields not yet found will show an increase over the years which is expected considering the demand for oil will still be as strong as ever, this means there will be explorations into very inhospitable places like the arctic and Antarctic. A fact exemplified by territorial claims to the arctic that are raging between countries with boundaries with the territory.

Analysis of futures prices as a predictor of peak oil production.

In today's market future contracts are one of the most important instruments in the trading of oil. By buying or selling futures contracts, the trader assumes both the right and the obligation to execute the (buying or selling) trade at the predefined future date.

The trading of these instruments incorporates a mechanism whereby while open; futures contracts incorporate a continuous adjustment to the changes in the current market price for each particular contract date. This adjustment is processed through paying or receiving cash corresponding to the change of the value of the open positions of each trader that result from the oscillations of the market prices.

When analyzing the expected behaviour of futures prices in relation to present (spot) prices, standard economic theory presupposes that in the absence of changing production costs or risks, the futures prices should rise as the date of the contracts gets more distant in the future (a situation called "contango"). This is because in equilibrium economic setting (in which there are no imbalances that allow a correcting arbitrage activity), the cost of maintaining products in storage and the inflation should be incorporated in future prices (or there would be no incentive at all to maintain stocks). This classical theory was first presented by (Hotelling.1931) and argues that the futures prices should simply rise to match the nominal interest rate. However, some authors defend that in "normal" circumstances, the prices of crude futures contracts should be in backwardation (the opposite of contango: the situation when present prices for the futures contracts get lower as their dates get more distant in the future). (Almeida and Silva. 2009)

Mitigation efforts

Although many factors will conspire to affect the price of oil for instance, terrorism, regional war and regulation and policy, it has become widely accepted in the market place that the effects of peak oil are becoming prevalent in the price calculation of market oil prices.

Fossil fuels will not be overtaken by renewable for quite some time but while the reality is that global energy demand is growing. The future lies with a diverse energy supply, where power and transport fuels are produced from a range of sustainable sources.

For the world to prepare for the impending decrease in the extraction and production of oil and oil based products a whole new approach to energy production and its consumption an overhaul improvement and optimisation of existing generation methods would go some way in bridging that gap these would include nuclear power, renewable energy from; wind, wave and tidal, geothermal and solar. Hydro electric schemes would have to be boosted for those areas where it is practical.

With a boost to existing method, funding and incentives for research into new forms of energy generation and development into sustainable energy sources. Here below are some options


Nuclear seems a good alternative to oil and good measures have been implemented to ensure nuclear provides a greater percentage of the energy demands of the future. Experts believe the global nuclear energy market is poised for exponential growth in the next 10 year in a period of development for the industry.

The main drivers for nuclear power are widespread concern over security of energy and the desire to decarbonise economies across the globe. This will be met with opposition from international bodies led by the International Atomic Energy Association (IAEA) western and other democratic countries threatened by the possibility rogue, undemocratic states obtaining nuclear weapons derived from by-products from nuclear power generation. Iran, for instance their Iranian government claims to be developing a civil nuclear power programme capability but is still to convince the IAEA that their efforts are purely peaceful and civil use. As a consequence they are coming against strong opposition with the threat of military action if they can not comply with mandatory IAEA inspections through the process. Other less controversial countries to apply for a domestic nuclear power program include United Arab Emirates (UAE)

Another very immediate set back to nuclear power is the possibility of another Chernobyl. This is exemplified with only Mexico, China and Romania the only countries to take up nuclear power since the disaster. The sector continued t grew steadily but far from spectacular.

Renewable energy

Renewable energy includes, geothermal, solar, wind, hydro, tidal and wave energy for electric generation and direct use of solar and geothermal heat is also included in this category.


Concentrating solar power (CSP) this is where solar thermal energy is concentrated by mean of parabolic mirrors or lenses onto a moving liquid with a high specific heat capacity. This runs in circuit, with the hot liquid generating steam form water in a heat exchanger. The steam is the used to generate electricity from turbines which.

This would only be practical in areas of high annual sunshine intensity. Such places would for example be the northern deserts of Africa; sparsely populated area could be committed to large installations of these plants. The power generated would then be transmitted to areas of high population density like European cities by connecting power grids.


Production of biodiesel and ethanol for transport for transport fuel from biomass has seen some of the highest growth rates in recent years. There is a danger however of feedstock farm land being substituted for biofuels production, where fuel crop offer a better profit relative to food farming. Regulation can play a major role in ensuring this doesn't become the case. Priority should be given to options that will deliver low cost, low carbon, scalable and demonstrably sustainable biofuels that eliminating or minimising any impact on food supply. Checks must be made to ensure there is sufficient land for such projects,

Projects currently running include, ethanol form Brazilian sugarcane, and purpose grown high energy grasses. New fuel products will need to be developed to substitutes fossil fuels without major alteration or modifications to existing engines. Such products already exist in the form of biodiesel and biobutanol that can be blended with existing conventional fuels.


The UK government is committed to reducing climate change. And several pieces of legislation have been passed to ensure business and the public adhere to these policies the climate change act 2008.

Legislation is proving to be a very power full tool in the regulation of energy use to ensure its most efficient use. European Union's emissions trading scheme (ETS) commits large companies to a fixed carbon emissions and to buy any extra emissions that are outside their allowance.

For organisations outside the ETS for instance; "lighter" industries, medium sized companies, public sector bodies such as local councils, National Health Service (NHS) whose expenditure on energy is more than £500,000 whether on electricity, gas or heating oil. The CRC energy Efficiency Scheme (formerly the Carbon Reduction Committee) aims to make these organisations more energy efficient. Organisations that fall in the above bracket will be required to report their emissions for 2010 during next year and in April 2011 they have to buy carbon allowances at a fixed price (£12 a tonne) they will have to buy sufficient allowances to cover their predicted carbon emissions, bases on last year's emissions. Then after several years a cap and trade system, similar to the EU's ETS will be introduced. (Department of energy and climate change. 2010)

Improved energy efficiency will help the UK to Archive internationally agreed emissions reduction targets.


While oil and fossil fuels still serves for most of the global energy demand the fact that they are finite sources of energy, about to reach its peak extraction and production. The intrinsic nature of the supply and demand of oil and fossil fuels to the global economy, with far reaching effects as recently illustrated by the volatile events in financial markets across the globe. The consequences associated to fossil fuel combustion of global warming and climate change. All these factors conspire to inform the world of impending disasters if the current level of level of dependence is continued. On the positive note major advances in renewable energies like biofuel, wind, tidal and wave energy. Refinement of existing technologies in nuclear power, even improvements combustion technologies with more efficient engines and processes will help in holding back the effects that will inevitably result from fossil fuel depletion. Most importantly are the efforts to inform business and the general public of the dangers of wasteful consumption and use of energy as this will have a direct effect on the demand of Fossil fuels and hence therefore their extraction and production there by delaying the Peak oil effects.


Almeida and Silva, 2009.the peak of oil production- Timing and market recognition. energy policy.

Department of Energy and Climate Change (2010) CRC Energy Efficiency Scheme

IEA, 2008. World Energy Outlook 2008, Available from:

Hubbert MK. March 7-8-9, 1956. Nuclear Energy and the Fossil Fuels.

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