Fossil Fuels (2006)

The last few years, the idea has gained ground that there is a limit to the availability of fossil energy carriers and uranium. That is the result of physical, political, and economic restrictions, in connection with an increasing global demand. And in the decades ahead, the issue will only become more important.

Objective and analysis framework

This report intends to provide the members of the Flemish parliament and other interested parties an insight in the so-called upstream part of the market for fossil and nuclear energy, that is the path from localizing reserves to the moment of their extraction.
The report gives an overview of the terminology, the current reserves, the techniques used and the market players. But above all it provides an analysis framework to explain the forces that affect the process of looking for and extracting energy carriers. As a matter of fact, it is impossible to separate the developments in the upstream part from what happens further on in the energy chains. In this report, the analysis framework is applied to the historical developments, especially in the oil and gas market, in order to identify the driving forces in the market and to enable explorations of possible future scenarios.
In addition to that, the report explains five aspects of a sustainable exploration and extraction of oil, gas, coal and uranium and discusses the possibility of doing this in a more sustainable way. The report concludes with the significance of the above-mentioned for the Northwest European societies in general and for the Flemish society in particular.

Sufficient reserves but availability not guaranteed

We have no exact quantitative and qualitative knowledge of the energy presences in the world. An energy presence is identified as a reserve, if the probability of the presence is high enough and if the extraction is likely to be economically feasible. Both factors evolve over time together with the technical progress and other developments on the energy market. As prices evolve, reserves could become commercially extractable, at the going market prices. The size of the energy presences is uncertain, compared to that of the reserves.
The information in this report makes clear that the extractable reserves of coal, oil, gas and uranium are still considerable and at least sufficient for several decades, even if the global demand continues to increase strongly. And the total volume of the additional presences is even more considerable.
The presence of big reserves does not automatically imply the availability of the desired energy carriers in Flanders in the decades to come. In the short run, the available capacity of the existing installations is a fact. The total offer on the short term will depend principally upon the decisions of the authorities and the energy agencies with respect to the use of that capacity. Moreover, a temporary interruption of the production can always occur, as a result of calamities, political trouble or war conflicts.

The mid-long term offer will be determined by the investment efforts of the energy corporations in the production of the known reserves and in geological research and production estimates in order to create new reserves. The expansion of the production capacity will largely depend upon the investments of the national oil corporations (NOCs) in the OPEC countries. Some countries, such as Saudi-Arabia en Kuwait, have sufficient financial means. Others will have great difficulties in investing, because they refuse to let foreign capital enter the country or because they prefer to spend their income on politically inspired things, such as local subsidies or weapons.
In lots of (potential) production countries, there are also considerable forms of local or even general resistance against the oil and gas production, often because not enough consideration is given to the interests of the local population.
In the long run, both the final availability of the oil as well as its usability, may become a real problem, from the perspective of the impact on the question of sustainability. 

Geopolitical relationships and the possible reactions

Given the way the supply and demand relationships develop, geopolitical considerations will start to play a more important political role. As a consequence, energy supply security is becoming an explicit objective of the authorities in the consuming countries.
It seems rather doubtful that the desirable situation, in terms of security of the energy supply and sustainability, will be reached merely on a free-market basis, without the authorities implementing any evident corrections.
The supply side, as far as the available and extractable reserves of coal, oil, gas, and uranium are concerned, will be principally determined by the ways in which the industry and the authorities concerned will be able to create a well-balanced value chain. The interaction between the authorities and the market-oriented determinants is fundamental for the future provision of energy carriers.
Besides a physical component, including an appropriate production, transportation and storage infrastructure, that chain also requires a coherent institutional component: the financial and economic relations should be arranged in such a way as to minimize (geo)political and social tensions and to make sure that the necessary investments will take place.
For the energy policy of the Northwest European authorities, internationally speaking and in the short run, this means that it is important to take measures to effectively promote the climate for investment in the first place. In the long run, price effects of shortage and dependency will automatically become more important.
In order to make the market incentives evolve in the desirable direction, the global and local impact on environment and dependency will have to be integrated in the cost and the price of energy.
One important conclusion is that, in order to enable an adequate policy, the expected market developments should be evaluated within the correct time frame.

The challenge of sustainability

One of the consequences of the extraction of energy carriers that should not be neglected is their impact on the environment and on the inhabitants of the region where they are found. Some of the harmful consequences are the damage to the environment of the site and the health of the neighbouring inhabitants, bad labour conditions and the depletion of the local resources.
Sustainable development starts with the search for a long-term balance between environment, economy and solidarity with the generations to come. From a sustainability perspective, political reflection on the extraction of coal, oil, gas and uranium, not only asks for a larger time and space horizon but also for an understanding of a fair energy and environmental policy.
Wherever possible, the report expresses the external effects in economic terms by means of the notion of “external costs”, and using the ExternE program developed on behalf of the European Union. The total external cost of the use of fossil energy carriers and uranium in Flanders amounts to almost € 1 billion a year, taking into account the volume and the origin of the energy fluxes.
To a very large extent, the cost is connected with the use of oil. It is the result of the burn off of acidic associated gas in Russia and the emission of SO2 it brings about.
Secondly, the external costs are connected with the upstream processes in the chain for uranium. They have to do with the exposure to radiation as a consequence of radon emissions from storage reservoirs of radioactive waste in the neighbourhood of the mines.

What does this mean for Flanders?

For the Flemish authorities, there are two important policy areas where choices should be made and solutions can be encouraged: the availability of sufficient sources and the more sustainable development of the extraction sites. Political choices will be needed to achieve a real impact on both areas.
One of the important conclusions of the study is that an explicit distinction has to be made between on the one hand the aspects of supply and demand, mainly in connection with the market conditions, and on the other hand, developments that will only become really relevant in the long run. If this kind of analysis isn’t made explicitly, measures taken can have a negative effect. An accumulation of interventions in the market, not related to the real problem and the moment when this is taking place can have serious consequences for the energy market and the energy supply in the broadest sense.
In addition to this, the international and in Belgium also the federal component are equally important. It is vital for the EU member states to be sure about their energy supply. If this were open to doubt or in case of asymmetry between the countries, there would be a strong tendency to implement a unilateral energy policy. The European integration of the energy markets and the liberalization of these markets however have seriously reduced the opportunities to pursue an efficient national policy.
More generally speaking, it is important to come to an acceptable balance between producers and consumers, by engaging in a dialogue on the above-mentioned and other aspects, such as technology transfer, support to surplus value creation, etc. A framework for a long term and an internationally oriented policy can be found in the section “Geopolitical relationships and the possible reactions” here above.
With regard to a more sustainable development on the extraction sites, it is certainly possible to handle the own subsidy schemes, if they further abuses abroad. For that matter, this abuses have not yet been recorded, as opposed to The Netherlands, for instance.
It is not an easy thing for a Flemish policy to promote better working conditions and an effective environmental protection at the extraction sites but for certain carriers we do see some opportunities. Several measures have been suggested in the report, e.g. high demands to the origin of the uranium and permission requirements for the use of biomass.

 
Reporting structure

The report has five sections. Section A contains an introduction to the issue and a description of the analytical framework that has been used in the study. Section B presents the actual results of the process of applying that analytical framework to the problem in question. Section goes into the future, where the most important paradigms on the reserves are discussed and explicit attention is given to the aspect of the sustainable development. Section D focuses on the significance of the results for Northwestern Europe and Flanders in particular. Finally, section E bundles a number of appendices.

The chapters within the sections are written in such a way that they can be read independently. A reader for instance who is only interested in the significance for Flanders can directly go to chapter 10. Those who only want to read about the driving forces behind the market for the exploration and extraction just go to chapter 3, and so on.

However, reading the whole main text will give the best understanding, because all the chapters are closely connected. The appendices in section E provide specific explanations, background information, an extensive list of references and a bibliography.