Researching Global Economic Impacts of Peak Oil in the UK

Simon SnowdenUniversity of Liverpool Fudan University22nd June 2009ssnowden@liv.ac.uk

Overview

What is Peak Oil and why does it matter? What is the Oil Depletion Impact Group? What research is ODIG doing?

SoWhat?

Peak Oil – Who Cares?

Traditional Economics Tells Us:– The question is not oil, or gas, or coal– The question is energy– As prices go up new resources will be found– In the long term the price of new energy sources will go

down– So don't worry, everything will be alright

Oil is energy, energy is the ability to do work, an economy is people doing work

It is not simply an energy crisis, it is an economic and social crisis

IEA World Energy Outlook 2008

Decline rates higher than expected (6% rather than 3%)

$380 Billion pa investment required to maintain plateau production

If investment not forthcoming, decline rates nearer 9%

Down graded demand for 2030 by 10 mbd IEA chief economist predicts difficulties by 2020

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.

UK

197

6 IM

F C

risis

Oil Price

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Eurozone Infation (Source Eurostat)

Infla

tion

Rat

e

What Research into Peak Oil For the UK? University of Liverpool Oil Depletion Impact Group

– Investigating Oil Price Behaviour– Interpretation of Peak oil by the Media– Impact of Peak Oil on Individual Businesses– Impact of Peak Oil on the National Health Service– With Vets School and with support from food supply chain

Impact of Peak Oil on Food Supply Includes looking at breeding criteria for livestock

Upsalla University and University of Liverpool– Impact of Peak Oil on Economic Behaviour

University of Liverpool Oil Depletion Impact Group

Systems Dynamic Models

Price - Wavelets

Entity A Strategic Entity

ACTIVITY 1 ACTIVITY 2 ACTIVITY 3

PROCESS A2-1

PROCESS A2-2

PROCESS A1-2

PROCESS A1-3

PROCESS A1-4

PROCESS A1-1

PROCESS A3-1

PROCESS A3-2

PROCESS A3-3

Activities

Processes

Resources & Costs Allocated back to Processes, then rolled up to Activities

ACTIVITY 4 ETC

TRUEper ???£8.00per ???£8.00Resource 6

TRUEper ???£8.00per ???£8.00Resource 5

FALSEper ???£24.00per ???£12.00Resource 4

FALSEper ???£2.50per ???£2.50Resource 3

FALSEper ???£12.01salaried£50,728.00Resource 2

FALSEper ???£12.01salaried£50,728.00Resource 1

Oil BasedUnitsCost DriverUnitsCostResource

Entity Dairy Herd – Base Line

HARVEST

SPRAYING

Activities

Processes

CULTIVATION

Within Cultivation, the Spraying process is most significant for OV (due to costs of petrochemicals). 80% of Cultivation costs are oil price dependent.

Fertilising also looks significant (the cost of fertiliser, heavily reliant on hydrocarbons for its production)

CULTIVATE

FERTILISING

Cultivation OVR cost split

1%

60%

36%

3%

Harvest

Spraying

Fertilising

Plough/Cultivate

Oil and Non-oil Costs

81%

19%

oil costs

non-oil costs

Finding Solutions

Fixed Costs Variable costs Marginal Costs

– Marginal costs by demand

– Marginal costs by changing average cost

– Testing marginal costs of proposed solutions

Vulnerability Mapping– Where is value added– Where is the

vulnerability– Crossover points

Types of vulnerability– Vulnerability to price– Vulnerability to supply– Vulnerability to quality

Targeted intervention– Trigger points

Scenario Testing

Organisation Impact Work

Looking at the Dairy Supply Chain with Tescos and the Vets School

Impact on the Police and Policing

Peak Oil – So What?

Before oil was discovered UK faced severe economic crisis

Oil produced revenues so significant made the UK 4th Richest Nation in the World

UK Oil is now in decline (12%) Impacts on Inflation and GDP Not just macroeconomic impacts So what does the future hold for the UK?