Why we may never be able to say goodbye to oil

Little more than a decade ago, few imagined that the oil industry would be drilling a mile below the ocean floor in the Gulf of Mexico.

The vast technical challenges, the risks and the mind-boggling cost of the necessary offshore operations all appeared insurmountable.

Yet what drove major companies like BP on to try and harvest these and other "difficult" new reserves was simple economics. It was the relentless rise in demand for crude oil.

This demand pushed up the global oil price to levels where there was every incentive to overcome the obstacles and bring the oil ashore.

It was the arrival of the horseless carriage more than 100 years ago that rapidly set in train our global dependency on oil.

We have become hopelessly addicted to this flammable mixture of hydrocarbons extracted from beneath the Earth's surface.

On average, every single person uses two litres of the stuff a day.

We refine much of it into petrol, diesel and aviation spirit to fuel our cars, lorries, trains and planes to get about. We burn it to heat our buildings. We rely on it to produce electric power by spinning turbines directly or creating steam to turn them.

Modern farming and food processing methods depend on oil. Without radically changing our ways, we would starve without it.

Oil is also in high demand as a "feedstock" to make almost everything we use in our daily lives -- from polyurethane and solvents to asphalt.

And in spite of all our efforts to harness less polluting energy sources, nothing in the world can replace oil. Even wind turbines include oil-based products such as plastic.

Worldwide consumption of oil is far from evenly spread.

Western and oil-rich states use vastly more than less developed countries - and nowhere is oil consumed more intensively than in the United States and Canada.

The Arab Oil Embargo of 1973 spurred some progress in reducing US oil dependence - notably in heat and power.

Today, a renewed "dash for gas" - both liquified and piped - is underway.

But the trouble is that the rising popularity of "gas-guzzling" pick-up trucks and sports utility vehicles in the 1990s has offset the benefits of tougher gasoline consumption standards.

Today, the US Government hopes to kick-start a new generation of fuel-efficient automobiles with multi-billion loans for vehicle makers.

So far, Ford and Nissan appear to be ahead of the pack in electric car technology.

But it seems unlikely North America will stop soaking up around a quarter of all the world's oil - not least because its citizens current lifestyles depend on buying gasoline to travel large distances for work and leisure.

So, for US policymakers, the priority remains raising vehicle fuel- efficiency standards.

If all cars on US roads simply met President Obama's plan for a minimum efficiency of 35.5 miles per gallon, the country could potentially save its entire Saudi Arabian import bill.

By contrast, the rest of us generally use more oil for heat and power than we do to get about.

That is why global demand for oil is highest when it is cold in the Northern Hemisphere.

After the US, Asia remains the next largest consuming area. It was the region showing the fastest demand growth until the 1998 economic crisis, which was the main cause of the oil price collapse that followed.

But the biggest surge in future demand for oil will now come from China and India.

That is because, between them, these two countries account for 2.5bn people -- a third of the world's entire population.

India's demand growth may be the slower of the two. Yet the arrival there of a $2,000 Tata Nano car shows the country's vast potential to drive up future world consumption.

As recently as 1990, China got through around two million barrels of oil every day. That figure is pushing seven million now and set to rise to twice as much again by 2030.

As America's Energy Information Administration points out, that extra demand alone will add 10% to the world's consumption.

Another way of looking at it is that the Chinese currently consume just one litre of oil a day per head, compared with 11 litres in the United States.

If the country's oil demand were to reach US proportions, total world consumption would double.

As so called "peak oil" theorists have it, such levels of production would be impossible to achieve, now that the rate of worldwide extraction is already in, or close to, terminal decline.

The latest estimate from the International Energy Agency forecasts worldwide oil use may rise in 2010 by 1.7 million barrels a day.

That is a bit more than previously thought, because of slightly faster post-recessionary growth in the United States boosting fuel consumption.

Looking 20 years ahead, estimates inevitably vary.

The oil giant ExxonMobil suggests total demand for oil products could be 35% higher by 2030, the rise driven mainly by growing population and economic growth in developing countries.

And that is taking substantial energy efficiency gains into account.

The US census bureau predicts the world population in 2030 will be almost double that of 1980.

More widely, the World Energy Council thinks total global energy demand growth could be as much as 50% higher by 2030, taking all other energy sources into account -- including water.

Yet fossil fuels will remain dominant in the mix.

Oil, natural gas and coal will still provide the vast majority of the world's energy needs, meeting close to four-fifths of global demand through 2030.

The fastest growing fossil fuel will be natural gas, because it is abundant, affordable and the cleanest-burning.

By 2030, global demand for natural gas is expected to be half as much again as it is now.

It is not what most of us want to hear, but energy demand growth will remain focused on oil and gas because there are no ready alternatives.

Nuclear power will continue to supply a proportion of the world's energy needs, but questions remain over public confidence, commerciality, and waste disposal.

Renewables and alternative sources of energy will play a larger role, but their contribution will remain small.

Solar, wind, and other alternatives contribute little over 1% of America's energy needs. Biomass could be adding another 4% by the end of the next decade.

But for the moment, there is no alternative to burning hydrocarbons.

Present estimates suggest production from all existing oilfields being exploited is waning by 3% per year.

So with demand rising by some 2%, that is a widening gap that the industry cannot bridge, with or without all that crude oil gushing into the Gulf of Mexico.