Reducing Ireland’s Oil Dependence: some initial thoughts

The recent ASPO/SEAI event, which was headlined by a presentation from the IMF on Chapter 3 of their April 2011 WEO, has prompted some further thinking on the issue of Ireland’s strategy for risk management and resilience building. Probably the most important statement by Dr. Kumhof was

If there is a non-negligible risk of future oil scarcity in the near term, then it would be negligentnot to manage the associated risks.

Dr Kumhof presented a wealth of very useful information, and more importantly, an approach to understanding our economy’s dependence on energy and oil in particular, that needs to be repeated for Ireland. Below are some initial thoughts using headline data from the IMF and SEAI.

The chart above shows total oil consumption in Ireland on energy related activities (95% of all oil used) [source]. Clearly, the lions share goes into Transport, although Residential use is also substantial.

A closer look at the Transport sector demonstrates that private cars are the single largest consumers. Consumption by rail and public passenger services is paltry. ‘Unspecified’ and ‘Fuel Tourism’  are remarkably significant and will be looked into further in future research.

Let us next take a look at historic consumption and future projections, which were prepared by SEAI [source]:

Included in the chart of oil consumption is GDP data from the IMF’s WEO database [source]. The scenarios shown include SEAI’s Baseline scenario, which used the 2009 growth forecasts from the IMF (since reduced in 2010). It also includes the impact of two action plans (AP) focused on energy efficiency (NEEAP) and renewable energy (NREAP). The IMF’s April WEO considers the scenario of a 2% decline in oil availability, which is also included here from a demand perspective. To halve our oil demand by 2020 required an annual 6% reduction. Given the strong historic correlation between oil consumption and GDP, one worries about our ability to produce the growth anticipated by the IMF while reducing oil demand, at least without a very clear plan for achieving it.

The argument for pushing the Nation down the curve ahead of a shortage is to build some resilience into our economy and reduce the risk of our current high degree of exposure. There is obviously a cost associated with such an insurance policy, just as there is a cost if we’re caught unprepared. It’s a political call as to what’s an appropriate balance of cost, benefit, and risk. The present concern is the general ignorance surrounding the nature and potential cost of the risk we’re taking by doing little or nothing to prepare.

To see what an aggressive reduction in oil consumption for Ireland might look like, I set some headline targets for 2020 to see what it would take to achieve based on current patterns of usage. I started by assuming Industrial and Agricultural usage would remain flat, although I averaged agriculture over the last 10 years on the assumption that there would be an increase in activity, while industrial use could be expected to become more efficient, allowing greater output with the same input, sensible but arbitrary assumptions. I then assumed a doubling in demand for rail and public transport. I assumed road freight transport would double in efficiency. I assumed residential and commercial/public services would make large gains by reducing to 45% of current usage. I assumed aviation demand would halve, again arbitrarily. I then made the very dramatic assumption of a 2/3 cut in demand from private cars. It’s not possible without a collapse in the economy, but I wanted to look at what it would take to halve current consumption in transport overall.

	2010	2020	Target reduction
Total final energy consumption (Oil)	7,330	4,123	56%
Transport (all)	4,578	2,313	51%
Transport- sum of all road transport	2,818	1,373
Transport- road private car	1,898	633	33%
Transport- road freight	733	367	50%
Transport- road public passenger services	187	374	200%
Transport- Sum of all aviation transport	788	394
Transport- international aviation	774	387	50%
Transport- domestic aviation	14	7	50%
Transport- unspecified(excluding road, rail and aviation)	623	312	50%
Transport- fuel tourism	309	155	50%
Transport- rail	40	80	200%
Residential	1,267	565	45%
Commercial & Public Services (all)	491	219	45%
Commercial services	319
Public services	171
Industry (all)	769	769	100%
Agricultural	226	257	114%

Here’s what the scenario looks like:

Based on what we know from Hirsch, Ayres/Warr, and the IMF, such a dramatic reduction in demand over a relatively short period would only be observed in a situation where the economy effectively collapsed. However, if we don’t make a plan now to figure out how to reduce our dependence while we’re trying to resurrect the economy, we’re going to end up in a very vulnerable place. This is an opportunity, we can’t afford to miss it.

ASPO-Ireland