Figure 1. Global energy consumption against global GDP. Source: Lloyd 2010. Lloyd argues the decoupling of GDP from oil in the last five years reflects China’s massive increase in coal consumption since 2001.
Peak production of oil refers to the point when the rate of global oil production has peaked and will soon begin a long-term and permanent decline. Estimates of when oil production will peak vary, but recent reports indicate it will occur within this current decade or soon after[1].
The remaining global oil reserves after peak production are more expensive to extract, of lower quality and under increasing world demand particularly from growing economies such as China and India. Collectively these factors are predicted to create volatile and persistently higher prices for oil[2].
Energy consumption is strongly linked to GDP rates (figure 1) and rising oil prices have been predicted to lead to a slowdown in the global economy. For example Hirsch[3] predicts a liner relationship whereby a 1% decline in oil production would lead to a 1% decline in global transport which will lead to a 1% decline in global GDP. Hirsch[4] also predicts oil will peak this decade and production will thereafter decline by 2 – 5% decline in oil pa. However Lloyd (2010)[5] argues that economic responses to peak oil are more likely to be non linear; where small events can trigger disproportionate reactions. This suggests there may be a wide range of possible scenarios that the world, and subsequently New Zealand urban settlements, might face as oil production declines.
New Zealand is vulnerable to volatile oil prices due to its high vehicle use (second highest in OECD[6]) and its high reliance on oil based fuels for transport, 100% of which it imports. New Zealand’s dependency has grown over time, with oil consumption increasing by 50% (per head population) between 1990 and 2005[7]. While New Zealand is expected to hold 90 days of oil supply as part of its obligations as a member of the International Energy Agency, so as to provide a buffer against short term disruptions, this does not address long-term security issues from a declining oil supply.
While New Zealand analysis on peak oil is relatively sparse, Australian analysis by CSIRO predicted that ‘oil price increases will affect weekly fuel bills, increasing from A$40 in 2007 to between A$50 and as high as A$220 per week in real terms by 2018 for a medium passenger vehicle’ (2008 p11), if oil production declines abruptly and if vehicle and fuel technology is unable to rapidly transition from oil dependency. This could lead to a 40% reduction in local freight and passenger trips accompanied by a possible 3% decrease in GDP[8].
The CSIRO report confines itself to transport related impacts but oil is embedded in many other urban functions and urban basic needs including; asphalt, paints, plastics, medical products, clothing and fertilizers for primary food production.[9] New Zealand cities and towns are likely to feel the effects of oil price increases through increased fuel prices, increased prices for many of these good and services and eventually through diminished GDP growth or global economic shocks.
Next section; The impacts of climate change on urban settlements
[1] See Hirsch, Robert L. (February 2008). “Mitigation of maximum world oil production: Shortage scenarios”. Energy Policy 36 (2): 881–889. doi:10.1016/j.enpol.2007.11.009; and Dantas, A., Krumdieck, S., Page, S. 2006. Energy risk to activity systems as a function of urban form. Land Transport NZ Research Report 311. 75pp
[2] Ibid
[3] ibid
[4] ibid
[5] Lloyd B 2010 Peak oil are we ready for it? 2010 New Zealand Society for sustainable engineering and science forum presentation accessed www.nzsses.auckland.ac.nz/forums/index.htm#archive
[6] Measured by Vehicle kilometres travelled per person.
[7] Krumdieck, S. (2008). Presentation to Omaru Transition Town workshop. Available on YouTube – Transitioneering – Part 6 – Engineering for Energy …
[8] CSIRO 2008 op sit p11
[9] City of Portland 2006 Peak Oil Task Force Briefing Book Prepared by City of Portland Office of Sustainable Development Bureau of Planning Department of Transportation 2006