ASPO-Sydney www.ASPO-Australia.org.au Australian Association for the Study of Peak Oil & Gas- Sydney Coordinator, David Bell

Committee Secretary Standing Committee on Infrastructure, Transport, Regional Development and Local Government PO Box 6021 House of Representatives Parliament House CANBERRA ACT 2600 AUSTRALIA

Friday 27th March 2009

Our organization is a group of volunteers from various professions studying the timing of the peaking and decline of world production and the implications for society as a whole. It is Australia wide and is affiliated with ASPO International. There are now over 20 countries with ASPO organisations. ASPO-Australia has groups in most capital cities, and working groups in a wide variety of sectors.

The financial crisis is a precursor to the problems it will face in the future, as the end of cheap abundant, petroleum becomes more evident. The current financial crisis is in part due to the fact that oil supply has stopped growing yet the money supply continued growing and the financial system imploded. It is in rural areas where there is at no easy alternatives to oil are available for transport and agriculture. As well as reckless lending the Global Financial Crisis has also been caused by the global imbalances in trade and part of these imbalances are related to the import and export of energy especially oil.

The world has been producing more oil than it finds since 1985. (fig1) The world’s petroleum is nearing a peak in production and the peak of world discovery was back in 1965. All current data and projections we have seen points to the simple fact that world oil production is at or near peak (figs 2,3,5,6)

Recent price increases over the past 12 months show that peaking is close at hand as bidders for available oil become more intense before it helped trigger a burst in the debt bubble. Recent evidence seems to indicate demand is being reduced by a few percent by the prolonged recession. However this time the price of oil could well rise significantly again when the economy tries to recover due to declining production. In Australia two things mainly influence

1 the price of petrol: the price of Tapis crude (in US dollars - starting to rise again after a recent fall); and the exchange rate (Australian dollar versus US).

Most new supply from the new oilfield projects is costly as the oil is in very remote places so any fall in price will mean producers will shut in these projects. Cost blowouts on oil field projects due to rig, materials and ageing labour force are now very common in this industry. http://www.upstreamonline.com/live/article163609.ece

Recently OPEC has warned that the collapse in world oil prices will mean a supply crunch around 2013. This is not too far from what the IEA has previously warned.

The CEO of French oil giant Total has recently warned the world is at peak of world production.

"The world will never be able to produce more than 89m barrels a day of oil, the head of Europe’s third largest energy group has warned, citing high costs in areas such as Canada and political restrictions in countries like and . Christophe de Margerie, chief executive of Total, the French oil and gas company, said he had revised his forecast for 2015 oil production downward by at least 4m barrels a day because of the current economic crisis and the collapse in oil prices. Meanwhile, Mr de Margerie now expects a faster decline in production at older fields, such as those in the North Sea. At lower price levels, companies will find it harder to justify the greater cost of keeping such fields pumping.

http://www.ft.com/cms/s/0/d25b8d2c-fb97-11dd-bcad- 000077b07658.html?nclick_check=1

With rising prices we have seen oil exporters many with lower per capita GDP and rising populations increasingly consuming more of their own oil, meaning there is less for export (figs 4,8). For example Mexico, the United States number 3 exporter, is in serious decline and by 2012 will no longer export to the US. This will mean that the volume of available oil will continue to decrease. (Fig 7). The Mexican government has also been reliant upon this oil wealth to fund its spending and in the current financial situation, it could also exacerbate current problems of national stability.

The current reality means we are now locked into a bidding auction for remaining available petroleum and as such we have three options;

a) Pay or go broke, - current strategy hoping problem will go away b) Adapt by moving transport away from oil and plan to be less oil dependent. – Most advisable option c) Enter into costly wars for remaining energy with both producer and consumer nations- neither advisable nor capable of succeeding.

2 Australia’s own dwindling production and increasing consumption is now contributing to a very poor balance of trade report. On ABS figures we imported oil and refined products worth $29.6 billion in 2007/08(not including the imported vehicles to use some of this fuel). This helped contribute to the $18 billion Trade Deficit for the 2007/2008, year. (Source ABS). This was money that left Australia for foreign shores and was paid for by borrowing more foreign debt. This position is not sustainable especially given the current banking and financial crisis. Long-term sustainability should be independent of short-term crises, even if the present crisis was short-term.

Australian Oil and Refined Products Imports

0 Jul-07 Aug- Sep- Oc t- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- -500 07 07 07 07 07 08 08 08 08 08 08

-1000

-1500

-2000

-2500

-3000

-3500

Source ABS

Australia’s net foreign debt stands at over $658 billion as at Sept Qtr 08. http://www.abs.gov.au/AUSSTATS/[email protected]/mf/5302.0/

Unless we make serious steps to reorganise transport investment and reduce our oil dependency we will not solve the balance of trade problems or the current account. Continuing to borrow money offshore is getting harder as the recent Interview of Frank Gelber indicated on Lateline business

“We're tapped into overseas market because we have an overseas borrowing requirement to finance the current account deficit and to rollover our external debt. And so, we're feeling the credit squeeze here. And the banks who were aggressively pursuing, you know, business a year and two years ago are now starting to want to cut back on gearing, and so, financial feasibilities don't work for projects and banks are trying to pull the rug out from under. There's no equity finance to replace it. And so, what happens? We can't invest.”

http://www.abc.net.au/lateline/business/items/200902/s2500424.htm

Our organization has a clear voice when it comes to transport and it is the same as the Chief Economist of the IEA Mr Fatih Birol “get out of oil before oil leaves us”. He recently said this in an interview “With the World Energy

3 Outlook 2007. It was a clear signal to the governments of all our member countries. They take energy and oil security much more important than before, now. And when we present the WEO 2008 this November, I think it possible that the sirens will shrill even louder.”

Since then the 2008 World Energy outlook says this

The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially. But that can — and must — be altered; there’s still time to change the road we’re on.

Securing energy supplies and speeding up the transition to a low- carbon energy system both call for radical action by governments — at national and local levels, and through participation in co-ordinated international mechanisms. Households, businesses and motorists will have to change the way they use energy, while energy suppliers will need to invest in developing and commercialising low-carbon technologies.

http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf

At this stage we do not see sufficient action at Federal, State government or local government level to address IEA concerns. This is despite the fact that the Senate report into Australia’s Future Oil supplies warned with what would happen with the peaking of oil. Neither the Howard or Rudd government have taken this report seriously to date. In the report the economic effects of Peak oil were well discussed. http://www.aph.gov.au/SEnate/committee/rrat_ctte/completed_inquiries/2004- 07/oil_supply/report/index.htm

Outcomes Required

We advocate the following. • A concerted nation-wide campaign is needed to raise community awareness of and engagement with the science of Peak Oil and the very serious risks posed by our high oil vulnerability. Without community support, it will not be possible for Governments to divert investment from the current counter-productive roads and tollways into the needed public transport and active transport alternatives. As with water shortages, if people understand the risks of future oil shortages, they will be far more likely support measures designed to minimise consumption of a scarce non-renewable resource • Federal transport and economic bodies (ABARE and BITRE, for instance) seem complacent to the point of negligence about the risks of Peak Oil. This reminds us strongly of the approach of the US financial regulatory authorities to risks from the sub-prime mortgage frenzy, and the associated "innovative" financial products.

4 • Basic transport data, and the social science behind transport are sadly under-resourced. As just two examples, the "Queensland Transport Facts 2008" report has not been released due to lack of funding, and the world-leading oil vulnerability research at Griffith University (Dodson and Sipe, 2008) is very poorly resourced. Both provide evidence that urban toll-roads are poor investments and increase our oil vulnerability. The Dodson Sipe research is an urban study but there appear to be no work for rural and regional areas.

• Investment in rail for both passengers and freight is essential especially for rural and regional areas.

• Encourage more use of Natural gas over diesel for trucks and buses in places where rail is unable to go, but gas pipelines are close by. In rural and regional areas from rail heads for deliveries of supplies and buses but recognising gas is also peaking worldwide and is finite. • Land use and transport planning based around the internal combustion engine has to change in favour of less oil dependent transport. • We see freeway and new highway building is over. The Cross City tunnel, the Lane Cove tunnel as well as Bris Connections floats as proving our point. • We see that airline growth is over and many airport plans and forecasts will turn out to similar to many, freeway traffic modelling to be totally wrong. This means a proper rail system is essential. • We see proposals for many transport projects as being contrary to the future fuel availability and sustainability requirements. • Power generation in remote areas needs to be generated by renewable energy over diesel. Electricity energy production by diesel should be a last resort option. The government could do much to help achieve this by more money for programs for solar and wind.

Rural & Regional Rail Revival

We support an electrified rail solution that allows for both passengers and freight as both Peak Oil and Climate Change require solutions that work together. Where electrification is not possible, the use of diesel trains is still more desirable than road-based transport. While rail will not solve peak oil it will help us better ameliorate some of the problems caused by Peak oil.

The closure of many rural rail lines in NSW has meant that rail no longer runs to these towns. Examples are Mudgee, Cooma, & Bourke to name a sad few. We would like to see improved rural rail lines and a plan to bring back passenger and freight rail to these regional areas which will suffer from the effects of peak oil.

The Victorian Government has improved the rail lines so its V/locity trains can run at speed. http://www.vline.com.au/about/ourfleet/vline_is_expanding.html

5

http://www.vline.com.au/media/news/MediaReleases/2044233446/Article.asp x

If it can be done in Victoria why is it not possible in other parts of Australia and how can the Federal government make it happen?

In France after building lots of high-speed lines, there is now a concerted effort to bring rail back to many provinces.

http://www.guardian.co.uk/world/2008/aug/23/france

The federal government could well help in this matter by making funding available to good projects that reduce our oil vulnerability and oil dependency.

One example of this is the Sydney to Canberra service it takes over 4 hours and a distance of roughly 300 kilometres and an Xplorer train can travel around 140 km/hr. Something is seriously wrong here. This encourages flying or driving from Sydney. http://www.aptnsw.org.au/newsletters/19952.html The other example is the Sydney to Melbourne XPT service. If the train is capable of speeds of 160 km/hr why does it take over 11 hours? Why is it also 80 km long than by road?

http://en.wikipedia.org/wiki/Sydney-Melbourne_railway

In the Senate Rural and Regional affairs committee into Australia’s Future oil supplies Pacific National gave many examples to the Senate of the state of the rail system as an operator.

http://www.aph.gov.au/SEnate/committee/rrat_ctte/completed_inquiries/2004- 07/oil_supply/submissions/sub169.pdf

While the idea of a multi billion dollar high speed rail mega project sounds enticing, there is probably more value improving what we have than trying to build a whole new railway.

Part of this has to do with the rail alignments which are still the same as the steam train, lots of bends and lengthy. Appendix 1 to this submission is a Paper by Philip Laird on Melbourne – Sydney – Brisbane. It notes how much has been poured into highways as compared to railways. It also helps to explain why rail is so slow and inefficient. It also advises ways of projects that could be done to improve the situation. This seems to be very sensible from a peak oil perspective and is essential for the future we will encounter. We see much of this report as being a National priority to reduce fuel use.

We should be aiming as a nation to have Melbourne- Sydney Brisbane electrified. The Sydney – Canberra line after upgrading should also be

6 electrified. Most advanced nations have good electrified systems and we should be at doing the same.

The other reason if we improve the main lines then the branch lines have a chance of being brought back. Lines and towns where rail could go back to that could be brought back in NSW include Mudgee, Cooma, Crookwell, Glenn Innes, Murwillumbah and Inverell to name a few. In many regional towns many want their railways back.

http://gleninnes.yourguide.com.au/news/local/news/general/last-train-now-a- 20-year-ghost/1371598.aspx

http://www.tweednews.com.au/story/2009/02/26/get-train-on-track-now-say- residents/

http://www.tweedecho.com.au/index.php?option=com_content&task=view&id =1116&Itemid=538

From the article above there also seems to be a question of the State governments and their Treasuries being serious about railways to regional areas. Perhaps it is time the Federal Government provide and fund some of the big ticket infrastructure and give it to community railway groups to run the service.

http://www.networkrail.co.uk/aspx/983.aspx

http://europa.eu/scadplus/leg/en/lvb/l24014.htm

One example of a Community Railway is the Cooma Monaro railway. On its website it makes mention of line from Canberra was closed by flood damage to the bridge over the Numeralla River. This seems an example of the type of infrastructure the Federal government could do to get rail back into various towns. If the Federal government contributed funds to rebuild the bridge and some money to get the line back in order, they might be able to run a service at a cost lower than say Railcorp could due to lower overheads. This could well be a model for the future but more investigation is required. http://www.cmrailway.org.au/index.html

In Appendix 2 A future for Regional Passenger Trains in NSW Associate Professor Ian Gray lays out a way of improving the rail system. It is essential that we have a viable and resilient rural and regional railway system for both passengers and freight.

If we are to rebuild our regional railways we will need to rebuild a workforce that can build and repair, rolling stock, tracks etc. It will require signal engineers and many other jobs that have disappeared from rural and regional Australia. This will require training and will also ensure opportunities for people to stay in regional Australia, as there are jobs for people. The present and the future economic situation will require the re-skilling of the Australian

7 population and the present problems represent an opportunity for an integrated government response.

We would encourage Infrastructure Australia and the Department for Infrastructure, Transport, Regional Development and Local Government look at ways for this to happen in light of the problems posed by Peak oil as well as climate change.

Resilient Regional Bio-regions

In Peter Newman’s Book Resilient Cities he notes that regional areas will need to work better to deal with resource degradation. To ASPO this means the government needs to evaluate how regional Australia can be made more resilient to the effects of peak oil. It will require more than just railways, it will be how food is grown, fuel and energy production, and development of small- scale businesses that help cut transport costs and the risks of shortages caused by availability of liquid fuels.

Regional Australia has opportunities to be made less oil dependent as well as the possibility of shifting away from oil. The will mean the use of more renewable energy where possible. The economies will need to be diversified and that will also require training in items such as sustainable agriculture, renewable energy production around what can be described as green collar jobs. http://www.csiro.au/resources/GreenCollarReport.html

This is similar to what the Centre for American Progress is calling for in its paper Transforming America’s Economy through Clean Energy, Innovation, and Opportunity

http://www.youtube.com/watch?v=0zvd74uUvvE

http://www.americanprogress.org/issues/2007/11/progressive_growth.html

In some parts of regional Australia, it is probably possible to generate biogas from waste to power trains like in Sweden. http://www.svenskbiogas.se/sb/docs/english/Biogastrain_produktblad_2005.p df

As part of making regional Australia more resilient we should be looking at how we can use waste to create energy. Not a silver bullet by any means,

http://www.uq.edu.au/news/?article=13788

http://peakenergy.blogspot.com/2008/03/banana-methane-powered-cars-pig- poo.html

8 It also means more jobs in small business and away from a culture that says big is the answer to all problems.

The current situation offers much that can be done like beginning the massive task of remaking remote, rural and regional areas less dependent on petroleum as well as the opportunity to make them more resilient. In a talk at Engineers Australia Southern Highlands and Tablelands Regional Group on 23 October 2008, I laid out a plan to make regional areas more resilient.

http://eashtrg.rollo.com.au/PeakOil&GlobalSustaianabilityStrategies.pdf

However we need to be using more solar for heating hot water and generating electricity. We have to think more holistically about energy and especially what a future with less liquid fuels means.

We are moving from being energy consumers to one of being conservers and producers of energy. This is a paradigm shift and what lies at the heart of our economic problems. In essence we have to start thinking differently.

Current government Stimulus package

Because the Federal government is not thinking of Peak oil seriously as it should we are not getting good policy outcomes as we should.

• Funding the car industry is pouring good money after bad, "What is good for International car company’s is probably bad for Australia" The money should go towards local manufacture of buses, trains and renewable energy equipment.

• Infrastructure Australia must be asked to review the infrastructure implications of Peak Oil, and to put a moratorium on the funding of any more urban and regional roads, unless justified within a Peak Oil framework, which is unlikely.

• There is still a belief that airline growth will continue exponential growth literally forever despite the fact that available liquid fuel availability will decline forever. This will ensure precious capital is wasted on the wrong investments. At the same time we have seen regional airlines close but no discussion of improved rail at a national level. Many old rural rail lines lay abandoned waiting to the opportunity for revival.

We see many of these programs as being incongruous with both Peak oil and climate change realities. However we see that the current crisis gives us the ability to change direction rather than trying to continue the current policy of Business as usual. The terms of reference of this inquiry seem to indicate a willingness to change and improve.

9 Summary

The current financial crisis is an opportunity for the government to begin making rural and regional areas more resilient and less vulnerable to future oil supply problems. This paper is an attempt to show a way forward to decision makers on the future. Recessions and depressions are caused by the fact that our systems are unstable leading to a destabilisation. This should give us pause to think we cannot sustain the unsustainable.

Our organisation is willing to brief Committee members on Peak Oil and the need for oil proofing transport in regional areas in much more detail than has been presented here. We wish you and your staff the best in this important inquiry.

Yours sincerely

David Bell Coordinator, ASPO-Sydney

10 Fig 1

THE GROWING GAP Regular Conventional Oil

60

50 Past Discovery Future Discovery 40 Production 30 Gb/a Revisions backdated. 20 Rounded with 3yr moving average Campbell, 2007. 10

0 1930 1950 1970 1990 2010 2030 2050 Source ASPO International

Fig 2 ASPO Forecast Production

PRODUCTION PROFILE Oil and Gas Liquids 2007 Scenario

35

30

25

20 ME-Gulf

15

Other

Billion Barrels a year (Gb/a) 10

Russia 5 Europe US-48 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 US-48 Europe Russia Other ME-Gulf Heavy etc. Deepwater Polar NGL

11

Fig 3.- World production (EIA data). Blue lines and pentagrams are indicating monthly maximum. Monthly data for CO from the EIA. Annual data for NGPL and Other Liquids from 1980 to 2001 have been upsampled to get monthly estimates. (Source The Oildrum)

Fig 4 World Net Exports Top 20 Oil exporters –93% of all exporters

Fig 5

Fig 6

12 Wikipedia Database, Moderate Decline Rate (4.5% per annum) Scenario, world oil supply and megaproject contributions, compared to observed EIA production data.

Fig 7 Mexico Production

13