The modern oil age started in earnest just over a century ago when the Royal Navy switched from coal-fired ships to oil-fired. That was followed by the switch in agriculture in the 1920s from using horses to plough and harvest to using tractors that ran oil petrol or kerosene. Before that 20% of a farm’s output went to feeding the draught animals as well as all the work in looking after them.
Luckily a lot of oil was found at the same time. In fact there was an abundance of oil from the discovery of the giant East Texas oilfield in 1930. The Texas Railroad Commission was given control of oil production in Texas in an attempt to restrict production and keep the price up. Then even more oil was found in the Middle East and Western Siberia, with the discovery rate peaking in the 1950s. That was over sixty years ago now and the discovery rate is now a fraction of what the world produces annually.
In the words of BHP Billiton’s petroleum chief, Tim Cutt, quoted on 19th May, 2015, in the last two decades world oil the industry has been finding less than half the amount it has consumed each year. Current consumption is running at over 30 billion barrels on an annual basis. In the past four years discoveries were less than 10 billion barrels per year and in 2014 they amounted to less than six billion barrels. That is only a fifth of current consumption.
The oil price has responded to the tightening supply with the price rising from June 2004. Non-OPEC, non-US oil supply peaked in that year and has not been higher since.
Australia’s geology has been kind to us with respect to coal and iron ore in particular. But our geology is generally unfavourable for oil. Australia is about the same size as the lower 48 states of the United States but was endowed with only one fiftieth of the amount of recoverable oil. The only part of the country that could still yet host oil fields large enough to shift the needle is the Canning Basin in northern Western Australia. Finds there would be a useful addition but not cure the long term problem.
Back in the 1960s, there plenty of fresh memories of WW2 and rationing, particularly fuel rationing and shortages. Oil was understood to be a strategic mineral and that Australia was at risk because just about all of our oil supply was imported. So, at the time, the Federal government subsidised oil exploration – both seismic and drilling. And when the first large oilfields were found in the country, in Bass Strait, they weren’t commercial to develop because they couldn’t compete with oil from the Middle East at US$4 per barrel. So Australian motorists paid a premium for petrol to pass through a subsidy to Esso and BHP for their oil from Bass Strait. As a result, we fared a lot better during the oil supply disruptions of the 1973 Yom Kippur War than we would have otherwise done.
Those Bass Strait discoveries were the start of 40 years of abundance during which Australia was largely self-sufficient in oil. That happy time ended in 2000 and our oil production has been falling away since. Similarly, we used to refine all the oil we consumed ourselves. Of the eight refineries that performed that task, the first closed in 2003 and it has been recently followed by three more to leave four – one in Queensland, none in the biggest market of New South Wales, two in Victoria and one in Western Australia.
Australia is now in the parlous position of importing 90% of its transport fuel requirements. Even if we were able to produce all the oil we needed, we wouldn’t be able to refine it.
At the same time, the geopolitical situation is deteriorating with ongoing wars in the Middle East the prospect of a major war involving Asian countries that provide the bulk of our imported refined products.
There is a solution to Australia’s liquid fuel security problem and it is a very good one. The solution is to use coal-to-liquids (CTL) technology to convert the low-grade portion of our substantial coal reserves into liquid fuels to keep farms, factories and food distribution systems operating.
The CTL solution can fill all of the gap from our conventional oil production, is not constrained by biological inputs, can produce the entire range of fuels and chemicals needed with supply security enhanced by plants distributed around the country. It will back out approximately $40 billion of annual fuel imports and provide a major boost the economy and welfare of all Australians.