Freight & Logistics: Production of UK oil peaked in 1999 – is our domestic supply now in terminal decline?
James Spencer: In decline yes, but perhaps not terminal decline. The Johan Svedrup field (the largest oil field in North Sea history) will start producing in 2019 and although in Norwegian waters, it shows that North Sea exploration isn’t dead yet. Much depends on the oil price though, as only a high price of oil will stimulate further North Sea investment.
FL: What are the main drivers behind the rise in the price of oil in recent months?
JS: Well, global demand for oil continues to increase – up by 2m barrels per day (bpd) in 2017 (to 99m bpd) and that is more oil than the world has ever
consumed in its history. OPEC’s (Organization of the Petroleum
Exporting Countries) strangling of oil supplies has also helped push prices upwards.
FL: What are the odds of an increase/decrease in UK fuel duty?
JS: Well I’ve got this one wrong for the last three years running, so I’m not sure my prediction is worth much here! I find it surprising that when the UK clearly needs to reduce the deficit, the powers that be have not reverted to what is widely acknowledged as a sure-fire, “below the radar” method of increasing tax revenues. So credit to the current Government which has stayed consistent on this issue and left fuel duty alone.
FL: The UK is one of the largest importers of road diesel and jet fuel in the
OECD (Organisation for Economic Co-operation and Development). Should the industry be concerned about security of supply?
JS: The fuel industry has proved itself to be resilient over the years – in the face of several crises. But at the same time, I would say that cats only have so many lives.
FL: What effect do you think the introduction of Clean Air Zones will have on the industry’s demand for diesel?
JS: Clearly there is a lot of pressure on diesel at the moment. This despite the fact that Euro VI engines have extremely low emissions compared to previous diesel engines and indeed most current gasoline engines. This should therefore enable Euro VI vehicles to come in and out of Clean Air Zones as they wish, which in turn means that demand for diesel should stay constant. But bashing diesel in the public domain makes for good politics (rather than good engineering), so don’t expect rational outcomes on this one.
FL: What do you see as the most promising alternative fuel options for operators in both the short and longer term?
JS: In the short term it has to be renewable diesels such as Neste’s HVO – which delivers 90 per cent reduction in Greenhouse Gas Emissions and around 30 per cent reductions in SOx and NOx – with no engine modifications required. Alternatively, gas to liquid diesels (diesel made from gas) or liquid/compressed natural gas both have impressive emission reductions. In the longer-term, electric vehicles are clearly going to become far more common, although the infrastructure required to charge the UK’s 37m vehicles is years from completion. Neither has anyone satisfied the ‘baseload’ debate, ie, how all these vehicles are to be charged without reverting to fossil-fuel-generated electricity.
FL: Do you think that alternative fuels will ultimately increase or decrease operator running costs in the years to come? My gut feel is that energy costs are going to go up over the next 10 years full stop and a global population that grows by 85m people per annum is the basis for that conclusion. And as things stand, alternative fuels used on a mass scale are more expensive than fossil fuels. To think otherwise, is to engage in wishful thinking.
FL: According to BP, your former employer, there may only be 50 years of oil left at current levels of extraction. Will the coming decades see us move into an era of oil scarcity?
JS: Well it was only 10 years ago that ‘peak oil’ was a fashionable theory and that has been totally debunked by the arrival of surplus oil as a result of shale exploration in the US. Looking ahead, I tend to think that oil will be extracted, and new ways found to extract it, as long as there is demand. But will there will be much demand for oil in 50 years time? I’m not so sure on that one… energy yes, but oil?
This interview originally appeared in the April 2018 edition of the Freight Transport Association’s Freight & Logistics magazine.