Are the chips down for oil?

Autumn's first frost has laid itself over the rolling farmland at the southern tip of Sweden, but inside the neat, renovated house owned by Fredrik and Lotte Myrebris the temperature is on the hot side of cosy. In the basement, a blue furnace is being fed automatically with small, brown pellets. Three years ago, the couple decided to end their reliance on heating oil in favour of compressed sawdust, a by-product of one of Sweden's most extensive natural resources - its forests. Along with cars and iron and steel, timber accounts for the bulk of the country's exports, worth US$176.5 billion (Dh647.8bn) in 2007. Fredrik and Lotte are not alone; today, an estimated 140,000 Swedish households, in a country of only 450,000 sq km - roughly the size of California - and with a population of a little over nine million, have made the move from oil to renewable fuels for heating. The switch has been prompted by a combination of a national concern for the environment, rising heating bills and the offer of a generous government subsidy, part of an ambitious plan to break the country's dependence on oil by 2020. Compared with many first-world nations, Sweden is already an environmentalist's dream - and an oilman's nightmare. One third of all new cars sold today are "green", with the majority running on ethanol, but also biogas, with hybrid power or with fuel-efficient diesel engines. Already, Sweden uses proportionately more renewable fuels than any other European nation, with 43 per cent of its total energy needs coming from renewables. It is, perhaps, not the prospect of losing Sweden's business per se that ought to concern the great oil-producing countries of the world, so much as the precedent that might be set if Sweden's plan is successful. The second half of 2008 has proved costly for the 13 Opec nations, which have seen the price of oil fall by more than half, from a record high of $147 a barrel in July. Meeting in Vienna on Oct 24, Opec announced that in a bid to bolster prices it would reduce production by 1.5 million barrels a day from Nov 1. The decision was a reminder that, while it can control supply, Opec has no influence over the other side of the equation: demand. Experts are divided over the issue of "peak oil" - the moment the world's maximum possible production rate is reached, following which supplies will start to decline - but whenever it is, the oil-producing companies will feel the pinch even sooner if the consuming nations radically reduce their dependence long before supplies run out. And Fredrik and Lotte are leading the world in this direction. In 2005, just as world opinion was approaching a tipping point on climate-change awareness, the left-of-centre government of Göran Persson announced its intention to make Sweden the first country to break its dependence on fossil fuels. A commission on oil independence was set up and when it reported in June 2006 the urgency of its message was underlined by Russia's disruption of supplies of natural gas earlier that year. "Our measures aim to reduce as far as possible actual consumption of oil by the year 2020," the report stated. "We also want to reduce the one-sided dependence on oil in areas where total independence from oil will take much longer to achieve, for example in the transport sector." There were three key recommended targets: reduce the use of oil in road transportation by 40-50 per cent; reduce the use of oil in industry by 25-40 per cent; and phase out totally the use of oil for heating. Although radical, and the most ambitious plan put forward by any government anywhere at the time, there was almost no controversy in Sweden over the recommendations. The only dissenting voices came from the energy-intensive steel industry. It is unlikely that Sweden's decision caused many sleepless nights in the Middle East. Sweden does not account for much of the world demand for oil. In 2006, it consumed a mere 356,000 barrels a day - roughly the daily output of Yemen - and, for a cold country fond of large Volvos, its per capita consumption was already on the low side: some 40 barrels a day per 1,000 head of population, compared with 70 in the US and more than 92 in the UAE. But where Sweden has led, America is now set to follow - and, for the oil-producing countries of the Middle East, that is an entirely different prospect. America is a net importer of more than 10 million barrels of oil a day - twice as much as Japan, the number two customer, and equal to almost the combined daily output of the top two producers, Saudi Arabia and Russia. In a speech in August on the campaign trail in Michigan, at the heart of the struggling US car industry, Barack Obama proposed a range of plans designed to cut America's reliance on oil, including using renewable sources to generate 10 per cent of the country's electricity by 2012, increasing to 25 per cent by 2025, and steering a million hybrid cars onto the roads by 2015. He also considered the possibility of lifting the federal ban on tapping into America's own offshore oil reserves. Back then, of course, Obama was a presidential hopeful. Today, he is the next president of the United States. His New Energy for America plan has one simple, headline goal: to "eliminate our current imports from the Middle East and Venezuela within 10 years", and Opec now faces the costly prospect of pre-election rhetoric being transformed into action. Now, perhaps, there may be a few more sleepless nights around the Gulf. Back in Sweden, although the right-of-centre alliance which has since taken power has yet to act on the report, Christer Segerstéen, who represented the forest industry on the commission, believes his country will succeed in breaking free from its dependence on foreign oil. Sweden will struggle, he says, to halve its use of oil in the transport sector - "I think all of us understand that oil will be used here even in the future" - but the phasing out of oil and coal from Sweden's communal district heating systems is well under way, with consumption down by some 70 per cent since the 1970s. And Sweden's determination to turn its back on oil has led to innovation that could yet have global consequences. The cathedral city of Linköping, halfway between Gothenburg and Stockholm, has been one of the pioneers in a fuel technology which is expected to play an important role in Sweden's plans for partial self-sufficiency. Proponents of biogas say this fuel, produced from the anaerobic digestion of organic materials, has the potential to replace somewhere between five and 15 per cent of the petrol and diesel used in transport today. The municipality began looking into alternative fuels in the late 1980s, in response to the problem of soot generated by local buses. The initial feedstock was sludge from the local wastewater treatment plant, but today it includes slaughterhouse waste, waste from the ethanol industry and even smuggled alcohol seized by Swedish Customs. The city's 70-plus public buses run on biogas, as do six per cent of all vehicles on the roads in the municipality. When the price of petrol rises at the pumps, these drivers simply shrug. Now, says Peter Undén, the chief executive of Swedish Biogas International, a group formed to capitalise on the expertise that has built up in the public sector in Linköping: "There is an extreme rise in demand for biogas plants. Everyone wants a renewable fuels plant." The attraction is obvious. Biogas generates value from waste and is virtually climate-neutral and the company has built three plants in Sweden which are operational and is in the process of constructing four more. Two projects are also under way in South Korea. But it is hard to ignore the symbolism of Swedish Biogas International's latest project, close to the heart of America's automotive industry. The company is building a biogas plant in Flint, Michigan, at one time the birthplace of the nation's Chevrolets and Buicks, which initially will produce electricity and heat and, in phase two, will manufacture biogas for municipal buses. Modestly, Mr Undén dismisses the suggestion that the major oil producers should be concerned by the success of this competing fuel. "I think," he says, "they should see it as an opportunity to broaden their spectrum of products on offer." Then, with the confidence of a man who knows that global public opinion and, increasingly, political will are on his side, he adds: "If they don't join the business, then at some point they should start to worry." David Strahan, author of The Last Oil Shock, in which he argues that oil production will start to decline within the next 15 years, says the Middle East is still far too dependent on oil. "Saudi Arabia is doing a lot to try to diversify its economy, but it is diversifying into things like natural gas and downstream chemicals," he says. "That is not great diversification." He believes Sweden's experiment and the global interest it has generated should concern Opec: "But what should concern them most is that they appear to be approaching their own peak fairly rapidly. "They, like us, are victims of the oil price spikes and slumps, and that is going to cause them more trouble than people changing their motoring choices in Sweden. If western governments were to react to our climate and peak oil crises with the urgency and co-ordination that is required, then Opec should be concerned." All, however, is not doom and gloom. What the region should do, he suggests, is follow Sweden's example and focus on the other renewable resources it has in abundance: sun and wind. This is a lead that has already been taken by the UAE, through such projects as the Abu Dhabi Future Energy Company's Masdar Initiative, the first such embrace of sustainable energy technologies by a major hydrocarbon-producing nation, and the organisation's plans to invest Dh7.3 billion in solar technology plants here and in Germany. And if they know what is good for them, says Mr Strahan, other Gulf nations will follow the example. "They have to get off the idea that their only job is to dig carbon out of the ground and flog it to us. These countries are well endowed with renewable energy resources that could substitute oil. It needn't be bad if they're smart. "But if they decide to go down fighting and sell every last barrel then they will be stuck in the old petrol economy when it is perfectly possible for us, the major consumers, to move into the renewable economy." * The National