When will the oil flow slow?
It was a strident declaration of the kind more usually associated with the shrillest doomsayers of environmental apocalypse. ‘Even though abundant oil reserves may be uncovered with the passing of time,’ came the cry, ‘the ability to extract that oil will be limited both physically and by the sheer cost of exploration and production. Consequently, there will be a sharp, and permanent, rise in oil prices from which there will be no retreat.’
The warning that the world may finally – after 30 years of such predictions – be tilting headlong towards peak oil, with its connotations of economic and social dislocation, came from an unlikely source: the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES). Back in February, task force members – architects and energy and transport companies – issued what they described as a ‘wake-up call for the UK economy’. Oil prices are likely to be higher, they argued, more volatile and carry the potential to destabilise economic, political and social activity. For good measure, they added that it was ‘inevitable’ that global demand would move to a point where it consistently exceeds supply. The only questions, said the IPTOES report, are: ‘How soon, and by how much?’
Those are questions that oil companies, governments and environmental campaigners have been asking since the OPEC embargo of 1973–74, when the Western world was brought up sharp by the sudden prospect of a society without oil. But the concept of peak oil is also a hugely emotive fault line between those who believe in anthropogenic climate change and those who don’t. It provides a utilitarian plank for the environmental movement’s case for a shift to renewable energy: not only should we ditch oil because of climate change, runs the argument, we simply have to. Others see peak oil as a symbol of the collapse of capitalism and unsustainable globalisation. On the other hand, because such claims have been made for three decades, sceptics have dismissed these warnings as a case of ‘crying wolf’.
Defining peak oil
It’s probably a good idea to clarify what exactly is meant by ‘peak oil’. What it doesn’t mean – as is commonly thought – is that we are about to run out of oil. We’re not. Estimates of proven reserves of oil and natural gas liquids range from 1.12 trillion barrels to 1.32 trillion, while global demand for the stuff is around 86.6 million barrels a day, according to the International Energy Agency (an oil barrel is 42 US gallons, about 35 UK gallons, or 159 litres; it’s an archaic calculation – these days, barrels are only used for lubes and greases for workshops).
Instead, the concept of peak oil referred to by energy experts and environmental campaigners relates to the maximum rate at which we can extract oil. Peak oil, defined in this way, occurs when the flows of oil can no longer be expanded. This relates to ease of access and rates of extraction at the wellheads – the slower we take it out of the ground, the less there is to go around. Oil extraction is currently running at around 83 million barrels a day – around three million barrels fewer than we’re using.
Peak oil matters because, whether we think it’s environmentally the right or wrong thing to do, right now, we’re stuck with oil. Cheap and abundant oil has underpinned the global economy since the 1940s, and the IEA’s 2008 World Outlook declared that ‘oil is the world’s vital source of energy and will remain so for many years to come’. Oil accounts for 35 per cent of primary energy use, and this is likely to be sustained by the rise of incomes in Asia. The OECD calculates that a salary of US$10,000 is the point at which people tend to buy a car and significantly raise their electricity use, and reckons that up to two billion people around the world are poised to enter this bracket over the next decade.
That figure of more than one trillion barrels of oil known to be available looks healthy enough to the casual observer, and BP argues that these alone will keep the world turning for more than 40 years of oil and 60 years of gas at today’s consumption rates. But the IEA warns that just to replace the oil reserves that will be exhausted and to meet the growth in demand, between now and 2030, we will need 64 million barrels a day of new oil-production capacity. The figures also mask huge variations in production around the world, with declines in production in non-OPEC fields.
Predicting the peak
So, how long do we have before we hit peak oil? Last autumn, the UK Energy Research Centre (UKERC) concluded that 60 regions and more than 100 countries had already passed the point of peak production. This is particularly the case in non-OPEC countries, where dwindling reserves have not been replenished by increased production. Mexico has dropped from 53 billion barrels of reserves in 1988 to 12 billion in 2008, the USA from 35 billion to 30 billion over the same period (oil production in the USA peaked in 1970). Many of the largest oilfields have reached a plateau of production, or are already declining (see Major oilfields in decline, page 43).
UKERC argues that worldwide production of conventionally extracted oil could peak and go into terminal decline before 2020, a concept acknowledged by Fatih Birol, chief economist at the IEA. ‘The most pessimistic scenario is that there are no major fuel discoveries and demand increases very strongly in line with what we’ve seen over the past 10–15 years,’ says Birol. ‘Then we may see conventional oil peak around 2020.’
The year in which the per capita use of oil was at its peak was 1978, when we used 31 barrels per capita. Today, there are more of us, and oil is used more efficiently. Nevertheless, we may already live in a peak-oil world. ‘There’s a strong case for saying that 2008 was when we touched peak oil,’ says Professor Kjell Aleklett, president of the Association for the Study of Peak Oil, which was founded by the geologist Professor Colin Campbell. ‘The only reason we may not have hit it then was that Iraq is the last country in the world with large oilfields not put into production. If not 2008, then it will be between 2011 and 2013.’
Aleklett is so convinced of this that he has laid a bet with Tony Hayward, the chief executive of BP, that less oil will be produced in 2018 than today, with the wager being the price of a barrel of oil that year. ‘By 2015, we will be producing 20 million barrels a day less than we are now,’ he says.
Alarm bells started ringing last year when a whistleblower at the IEA alleged that oil reserves had been overstated, and that the IEA had downplayed the lowering rates of production because it feared panic could spread on the financial markets if the figures were brought down further. The IEA concluded in its 2008 World Outlook report that world oil supply was projected to rise from 84 million barrels per day in 2007 to 106 million barrels per day in 2030. But the whistleblower told the Guardian that, while the IEA forecast that oil production wouldn’t peak before 2030, in reality, production of 90–95 million barrels
a day by that time was impossible.
Gloomy prognosis
Even without the allegation that the IEA had neutered its own conclusions, its 2008 World Outlook still makes for unsettling reading. According to its authors: ‘There remains a real risk of a supply crunch in the medium term [oil market] as the gap between the capacity that is due to come on stream from current projects and that needed to keep pace with demand widens sharply after 2010, squeezing spare capacity and driving up oil prices – possibly to new record highs. Output of conventional crude oil and natural gas liquids levels off as we near 2030, and will probably already have peaked and levelled off in non-OPEC countries by 2020.’
A startling scenario could quickly unfold, according to the UK’s IPTOES report. A shortage of oil would be quickly felt as a shortage of goods in the shops, all the more acutely when those goods are brought in from abroad; the global manufacturing industry – plastics and some fabrics have oil-based ingredients – is heavily energy-dependent; in the UK, 97 per cent of transport energy consumption is from petroleum products, and petrol and diesel account for half of all UK oil usage; high and volatile oil prices would affect everything from access to supplies to higher prices for raw and processed commodities.
Despite this, most observers believe we aren’t facing a post-apocalyptic world drawn from the script of Mad Max 2. ‘Peak oil will unravel globalisation to some extent,’ says Steve Sorrell, chief author of the UKERC report and a senior fellow at the Sussex Energy Group, the University of Sussex. ‘But I don’t subscribe to the “total collapse” scenario. There are extreme pessimists who believe in the end of the world with peak oil – but that isn’t helpful, and one reason why peak oil has been treated with scepticism by economists. But you can’t underestimate our dependence on oil and the challenge to replace it.’
Whether such findings are enough to prod the international community into direct action is unclear. ‘Politicians are terrified of mentioning peak oil,’ says Chris Skrebowski, director of Peak Oil Consulting and former editor of respected industry magazine Petroleum Review. ‘They are frightened of the social and financial reactions. Peak oil has been placed on the pile marked “too difficult”.’
Postponing doomsday
We may yet have more time. The IEA stands by its longer-range scenarios, and argues that oil demand will drop over the coming years, and that energy demand in developed nations has peaked – its own data show that OECD countries now use 45 million barrels a day, compared with 50 million in 2005. ‘If we also have new discoveries and we use oil more efficiently, then peak oil will be postponed,’ says Birol.
The counterargument against peak oil is that doomsday predictions have consistently been unfounded. Warnings that the oil is about to dry up have been made since the 1970s. We’ll always find more, argue sceptics, and, so far – aided by enhanced recovery techniques – they’ve been right. Those global reserves of 1.2 trillion barrels represent a substantial increase from the 998 billion barrels recorded in 1998, and an almost doubling of reserves since 1980. The US Geological Survey argues ‘there are sufficient resources for decades to come’, while analysts at Cambridge Energy Research Associates (CERA) forecast production of 110 million barrels a day by 2020, with a subsequent plateau rather than a peak in production.
Saudi Arabia, according to BP data, reported in 1998 that it had 255 billion barrels of proven oil reserves; in 2008, that figure rose to 264 billion barrels, while Kuwait increased from 95 billion barrels to 102 billion barrels and Iran from 93 billion barrels to 138 billion barrels over the same period.
The IEA says that, on average, the volume of oil discovered each year has been higher since 2000 than in the 1990s, thanks to increased exploration activity and improvements in technology. That said, the IEA acknowledges that most of the increase in reserves has come from revisions of estimates in OPEC countries rather than from new discoveries.
Increasing cost
The problem, however, isn’t that oil is running out, but that it risks becoming unaffordable. Skrebowski, who reckons we will hit peak oil some time between 2013 and 2014, argues that the growing demand for oil in developing countries is bringing the problem into extremely short-term focus. ‘Oil has proved stunningly successful and has wormed its way into every significant aspect of our lives because it was cheap and plentiful,’ he says. ‘But it stopped being cheap and plentiful in 2005. Even the oil companies admit that it’s getting more difficult to get the stuff out. It’s not that we’re running out of oil – it’s that the oil we want now comes at a high cost. There may be lots of oil left in the world but if we can’t afford it then it’s no damn use.
‘At the end of 2004, there was a huge surge in demand and more or less every wellhead was turned on,’ he continues. ‘We dampened demand in the West to meet demand in China and India – that’s the only reason why the whole thing didn’t crash and burn. We’ve essentially used all the low-cost oil, and from now on in, we’re left with the high-cost oil, and our economics can’t really cope with that – there’s not enough money in the global system.’
There are sceptics, and, unsurprisingly, they tend to come from within the oil industry. ‘We aren’t believers in peak oil,’ says Robert Wine, a spokesman for BP. ‘We think there are still lots of hydrocarbons in the ground around the world. Some of them are known, some are yet to be discovered. The problem is above the ground – it’s not the geology, it’s the politics and economics. We’re looking at a peak in demand rather than a peak in supply. Demand will probably drop off before the stuff physically begins to run out.’
Yet even BP acknowledges a world without oil. ‘We’re looking at decades, not 15–20 years,’ Wine says. ‘At the moment, we have a small renewable arm, and our main business is hydrocarbons. There will be a time 70–80 years hence when we will be in the reverse situation.’
Scraping the barrel
Those who argue that the world’s oil reserves remain buoyant point to enhanced oil recovery techniques that have utilised higher rates of recovery from conventional wellheads and enabled oil companies to make exploitation in remote, difficult or deepwater sites commercially viable. The showcase technology is three-dimensional mapping. BP’s operations at Prudhoe Bay in Alaska had an originally identified oil resource of 25 billion barrels, but seismic remapping of the oil field, augmented by infill drilling and improved waterflooding (whereby water is injected to displace residual oil) has generated an additional 1.2 billion barrels – a five per cent increase.
Yet such activity strikes many observers as – perhaps literally – scraping the bottom of the barrel. In March this year, US president Barack Obama gave the green light for Shell to drill in the Chukchi Sea between northwest Alaska and northeastern Siberia, a region believed to hold 15 billion barrels of oil. Even more controversial are projects to recover oil from tar sands.
The Athabasca tar sands project in Canada’s Alberta province, comprising Cretaceous-era sands saturated with oil spread over 138,000 square kilometres of land (an area the size of Florida), has captured the headlines and crystallised protest movements. But Canada isn’t alone – Venezuela has identified similar deposits alongside the Orinoco River. More than one million barrels of oil are being produced a day from Canada’s tar sands – a thick, viscous mixture of sand, water, clay and bitumen – but campaigners point out that greenhouse gas production from the operations is five times higher than conventional oil extraction and by-products include high levels of contaminated water.
Some observers argue that such activity, spurred on by the concept of peak oil, misses the point. ‘It’s so difficult for politicians to accept the concept of peak oil,’ says Aleklett. ‘We need to plan long term, longer than a normal political term. Food on the table is the most important thing, but that requires energy. We need to address the problem of the global population – the energy we need to produce food is equal to around 12 million barrels of oil equivalent. Our economy depends on oil – there has never been an increase in the global economy without an increase in fossil fuels.’
Perhaps unexpectedly, the IEA agrees with this view. ‘To seek a date for peak oil is the wrong approach,’ says Birol. ‘Even if we postpone the time when peak oil comes, we can’t assume there won’t be difficulties in oil supply. We have to prepare ourselves for difficult days to come – not today, or tomorrow but at some point in the future. We have to leave oil before oil leaves us.’
Adapting to alternatives
Some choices and changes may even be beneficial, according to Skrebowski. ‘There are some relatively benign adaptations we will make,’ he points out. ‘A quarter of oil in the UK is used for commuting, but more encouragement to work from home will be widely recognised as a good thing. But increasing oil prices will translate to higher air fares, which people won’t be happy about.’
Transport, accounting for 95 per cent of oil use, is the focus of attempts to soften our entry into the peak oil world. ‘A priority is to develop technology to take oil out of cars,’ says Birol, pointing to burgeoning research in this field in China. ‘I’m really hopeful, because China is placing a lot of emphasis on alternative transport fuels. Our forecasts suggest that China will account for around half of all global oil use, so this would be very significant. China was traumatised by the high oil prices of 2008 and doesn’t want to be a victim of that again.’
The geopolitics of a peak oil world, with most oil being sourced from autocratic governments, are likely to keep diplomats busy over the coming years. ‘The strong depletions in non-OPEC countries are very important,’ says Birol.
‘The bulk of declining fields are operated by international oil companies. The growth of oils will come from national oil companies. This is a big change – when private companies produce oil, they sell on the basis of supply and demand. In the future, there may be other factors – in many oil-producing countries, oil is the major economic tool, so some of them will look to see oil prices on the higher side and obtain higher revenue. That’s a legitimate approach for them to take, but it means oil and geopolitics will be more and more intertwined.’
Either way, most experts suspect that those who envisage a prelapsarian society emerging from the post-oil-dependent world will be disappointed. ‘I’m suspicious of people with a political agenda who feel we ought to be living in a significantly different way, living in a yurt and spinning dog’s hair into a warm winter coat,’ says Skrebowski. ‘Humanity more or less likes what it’s doing and I think there are an awful lot of smart people out there.
‘The problem is that at the moment, no-one really sees the reason why they should apply themselves,’ he continues. ‘If we muddle through, things will eventually work out, but there will be a clunky and unpleasant intervening period where the economics will be really quite brutal. It isn’t that fuel is running out – it’s the pressure on the system. The more time we give ourselves, the more chance we have for technology to provide the solutions. We can make the transition more or less as difficult as we care to – what we can’t do is to keep ignoring the issue.’
Finding solutions
Gazing into his crystal ball, Birol feels that it’s possible to be optimistic. ‘In 20 years’ time, I would like to see a system where oil still has an important role, but where alternative technologies are picking up and there has been a substantial growth in renewable energy. That would give us a less dense, less heated energy market. I’m hopeful, but it would be pushing the bounds of reality too much for me to say I’m sure about it. There are countries making a concerted effort to get to that point, but to say they all are would be to go too far.’
The echoes of the OPEC crisis may also provide some reassurance, says Aleklett. ‘It’s easy to forget that we have experienced peak oil before – in the 1970s and 1980s. When OPEC turned off the taps, we had ten years when we used less oil than we had before. People who lived through those times say it wasn’t too bad. We are humans, we can and will adjust. There’s no silver bullet, but there is a generation of people now who are eager to find solutions.’
Major oilfields in decline
Around 70,000 oil fields are currently in production, according to the UK’s Industry Taskforce on Peak Oil and Energy Security (ITPOES). Yet the vast majority of these produce oil in small and negligible volumes: 120 fields account for half of global production, and there are just four fields that produce – at least until recently – more than one million barrels a day: Ghawar in Saudi Arabia, which accounts for five per cent of daily world production; Cantarell in Mexico; Burgan in Kuwait and Da Qing in China. The concern about these oilfields, say the authors of the ITPOES report, The Oil Crunch, is that they are quite old, at or near the peak of their production, and no new finds of similar size have been reported for a long time.
In 2004, an energy investment banking firm, Simmons and Company International, published a peer-reviewed paper suggesting that Ghawar’s northern regions were almost depleted and two other giant fields had peaked production way back in the 1970s. The findings were ferociously rejected by the Saudi government, even though its own data show that Ghawar produced 5.1 million barrels a day in 2007, compared with 5.3 million in 1997, concluding that the field is at the ‘plateau’ phase of production.
Cantarell, operated by Pemex, is located 100 kilometres off the coast of Mexico’s Yucatán Peninsula. Production peaked at 2.1 million barrels per day in 2004, but even then, Pemex forecast an annual 14 per cent decline in production. Last year, production stood at 772,000 barrels per day.
The difficulty of calculating peak oil
As will be clear from the main text of this article, there is a huge variation in predictions for when we will hit peak oil – from those who say it happened in 2008, right out to 2030 and beyond. These disparities are partly explained by the misunderstanding of what is meant by peak oil.
‘The majority of people think peak oil is a matter of oil supply,’ says the IEA’s Fatih Birol. ‘This is wrong. How much oil is left, how much oil we produce and how much oil we consume are all factors. If we demand too much oil, then the peak will be closer; if we use it more carefully, the peak will be postponed.’
The issue for peak oil is the rate of production, according to Steve Sorrell of the UK Energy Research Centre. ‘There is confusion between the size of the resource and the rate of flow of that resource – the issue for peak oil is the rate of production,’ he says.
Generally, it’s economists who point to dates further away and environmental scientists who feel peak oil is almost upon us. ‘The problem is that economists don’t see peak oil before 2030,’ says Professor Kjell Aleklett. ‘They are only looking at the tank and seeing that it’s full. They don’t see the problem with the valve that takes the fuel out of the tank – it can’t be made big enough.’
Those predicting an earlier date for peak oil have been criticised for crying wolf. ‘The reality is also that pessimists are likely to be proved wrong earlier,’ says Sorrell. ‘But forecasting is an imprecise science. The knee-jerk reaction is that warnings about peak oil have been wrong before, so they’ll be wrong again. But we’ve had relatively optimistic forecasts for regions that have been proved wrong, such as for the USA.’
Another challenge for dispassionate scientists is that it can be a struggle to obtain authoritative data to work with. ‘The quality of data on oil production is appalling,’ says Sorrell. ‘We don’t have reliable data on resources of oil-producing fields – they are often unaudited estimates and are probably misleading.’
It looks as if this uncertainty will only be resolved when everyone agrees we have hit peak oil. ‘There’s a huge amount of uncertainty and disagreement over the data between petroleum economists and geologists,’ says Sorrell. ‘The latter look at the geological constraints of getting the oil out, while economists tend to look at supply and demand.’
June 2010
The warning that the world may finally – after 30 years of such predictions – be tilting headlong towards peak oil, with its connotations of economic and social dislocation, came from an unlikely source: the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES). Back in February, task force members – architects and energy and transport companies – issued what they described as a ‘wake-up call for the UK economy’. Oil prices are likely to be higher, they argued, more volatile and carry the potential to destabilise economic, political and social activity. For good measure, they added that it was ‘inevitable’ that global demand would move to a point where it consistently exceeds supply. The only questions, said the IPTOES report, are: ‘How soon, and by how much?’
Those are questions that oil companies, governments and environmental campaigners have been asking since the OPEC embargo of 1973–74, when the Western world was brought up sharp by the sudden prospect of a society without oil. But the concept of peak oil is also a hugely emotive fault line between those who believe in anthropogenic climate change and those who don’t. It provides a utilitarian plank for the environmental movement’s case for a shift to renewable energy: not only should we ditch oil because of climate change, runs the argument, we simply have to. Others see peak oil as a symbol of the collapse of capitalism and unsustainable globalisation. On the other hand, because such claims have been made for three decades, sceptics have dismissed these warnings as a case of ‘crying wolf’.
Defining peak oil
It’s probably a good idea to clarify what exactly is meant by ‘peak oil’. What it doesn’t mean – as is commonly thought – is that we are about to run out of oil. We’re not. Estimates of proven reserves of oil and natural gas liquids range from 1.12 trillion barrels to 1.32 trillion, while global demand for the stuff is around 86.6 million barrels a day, according to the International Energy Agency (an oil barrel is 42 US gallons, about 35 UK gallons, or 159 litres; it’s an archaic calculation – these days, barrels are only used for lubes and greases for workshops).
Instead, the concept of peak oil referred to by energy experts and environmental campaigners relates to the maximum rate at which we can extract oil. Peak oil, defined in this way, occurs when the flows of oil can no longer be expanded. This relates to ease of access and rates of extraction at the wellheads – the slower we take it out of the ground, the less there is to go around. Oil extraction is currently running at around 83 million barrels a day – around three million barrels fewer than we’re using.
Peak oil matters because, whether we think it’s environmentally the right or wrong thing to do, right now, we’re stuck with oil. Cheap and abundant oil has underpinned the global economy since the 1940s, and the IEA’s 2008 World Outlook declared that ‘oil is the world’s vital source of energy and will remain so for many years to come’. Oil accounts for 35 per cent of primary energy use, and this is likely to be sustained by the rise of incomes in Asia. The OECD calculates that a salary of US$10,000 is the point at which people tend to buy a car and significantly raise their electricity use, and reckons that up to two billion people around the world are poised to enter this bracket over the next decade.
That figure of more than one trillion barrels of oil known to be available looks healthy enough to the casual observer, and BP argues that these alone will keep the world turning for more than 40 years of oil and 60 years of gas at today’s consumption rates. But the IEA warns that just to replace the oil reserves that will be exhausted and to meet the growth in demand, between now and 2030, we will need 64 million barrels a day of new oil-production capacity. The figures also mask huge variations in production around the world, with declines in production in non-OPEC fields.
Predicting the peak
So, how long do we have before we hit peak oil? Last autumn, the UK Energy Research Centre (UKERC) concluded that 60 regions and more than 100 countries had already passed the point of peak production. This is particularly the case in non-OPEC countries, where dwindling reserves have not been replenished by increased production. Mexico has dropped from 53 billion barrels of reserves in 1988 to 12 billion in 2008, the USA from 35 billion to 30 billion over the same period (oil production in the USA peaked in 1970). Many of the largest oilfields have reached a plateau of production, or are already declining (see Major oilfields in decline, page 43).
UKERC argues that worldwide production of conventionally extracted oil could peak and go into terminal decline before 2020, a concept acknowledged by Fatih Birol, chief economist at the IEA. ‘The most pessimistic scenario is that there are no major fuel discoveries and demand increases very strongly in line with what we’ve seen over the past 10–15 years,’ says Birol. ‘Then we may see conventional oil peak around 2020.’
The year in which the per capita use of oil was at its peak was 1978, when we used 31 barrels per capita. Today, there are more of us, and oil is used more efficiently. Nevertheless, we may already live in a peak-oil world. ‘There’s a strong case for saying that 2008 was when we touched peak oil,’ says Professor Kjell Aleklett, president of the Association for the Study of Peak Oil, which was founded by the geologist Professor Colin Campbell. ‘The only reason we may not have hit it then was that Iraq is the last country in the world with large oilfields not put into production. If not 2008, then it will be between 2011 and 2013.’
Aleklett is so convinced of this that he has laid a bet with Tony Hayward, the chief executive of BP, that less oil will be produced in 2018 than today, with the wager being the price of a barrel of oil that year. ‘By 2015, we will be producing 20 million barrels a day less than we are now,’ he says.
Alarm bells started ringing last year when a whistleblower at the IEA alleged that oil reserves had been overstated, and that the IEA had downplayed the lowering rates of production because it feared panic could spread on the financial markets if the figures were brought down further. The IEA concluded in its 2008 World Outlook report that world oil supply was projected to rise from 84 million barrels per day in 2007 to 106 million barrels per day in 2030. But the whistleblower told the Guardian that, while the IEA forecast that oil production wouldn’t peak before 2030, in reality, production of 90–95 million barrels
a day by that time was impossible.
Gloomy prognosis
Even without the allegation that the IEA had neutered its own conclusions, its 2008 World Outlook still makes for unsettling reading. According to its authors: ‘There remains a real risk of a supply crunch in the medium term [oil market] as the gap between the capacity that is due to come on stream from current projects and that needed to keep pace with demand widens sharply after 2010, squeezing spare capacity and driving up oil prices – possibly to new record highs. Output of conventional crude oil and natural gas liquids levels off as we near 2030, and will probably already have peaked and levelled off in non-OPEC countries by 2020.’
A startling scenario could quickly unfold, according to the UK’s IPTOES report. A shortage of oil would be quickly felt as a shortage of goods in the shops, all the more acutely when those goods are brought in from abroad; the global manufacturing industry – plastics and some fabrics have oil-based ingredients – is heavily energy-dependent; in the UK, 97 per cent of transport energy consumption is from petroleum products, and petrol and diesel account for half of all UK oil usage; high and volatile oil prices would affect everything from access to supplies to higher prices for raw and processed commodities.
Despite this, most observers believe we aren’t facing a post-apocalyptic world drawn from the script of Mad Max 2. ‘Peak oil will unravel globalisation to some extent,’ says Steve Sorrell, chief author of the UKERC report and a senior fellow at the Sussex Energy Group, the University of Sussex. ‘But I don’t subscribe to the “total collapse” scenario. There are extreme pessimists who believe in the end of the world with peak oil – but that isn’t helpful, and one reason why peak oil has been treated with scepticism by economists. But you can’t underestimate our dependence on oil and the challenge to replace it.’
Whether such findings are enough to prod the international community into direct action is unclear. ‘Politicians are terrified of mentioning peak oil,’ says Chris Skrebowski, director of Peak Oil Consulting and former editor of respected industry magazine Petroleum Review. ‘They are frightened of the social and financial reactions. Peak oil has been placed on the pile marked “too difficult”.’
Postponing doomsday
We may yet have more time. The IEA stands by its longer-range scenarios, and argues that oil demand will drop over the coming years, and that energy demand in developed nations has peaked – its own data show that OECD countries now use 45 million barrels a day, compared with 50 million in 2005. ‘If we also have new discoveries and we use oil more efficiently, then peak oil will be postponed,’ says Birol.
The counterargument against peak oil is that doomsday predictions have consistently been unfounded. Warnings that the oil is about to dry up have been made since the 1970s. We’ll always find more, argue sceptics, and, so far – aided by enhanced recovery techniques – they’ve been right. Those global reserves of 1.2 trillion barrels represent a substantial increase from the 998 billion barrels recorded in 1998, and an almost doubling of reserves since 1980. The US Geological Survey argues ‘there are sufficient resources for decades to come’, while analysts at Cambridge Energy Research Associates (CERA) forecast production of 110 million barrels a day by 2020, with a subsequent plateau rather than a peak in production.
Saudi Arabia, according to BP data, reported in 1998 that it had 255 billion barrels of proven oil reserves; in 2008, that figure rose to 264 billion barrels, while Kuwait increased from 95 billion barrels to 102 billion barrels and Iran from 93 billion barrels to 138 billion barrels over the same period.
The IEA says that, on average, the volume of oil discovered each year has been higher since 2000 than in the 1990s, thanks to increased exploration activity and improvements in technology. That said, the IEA acknowledges that most of the increase in reserves has come from revisions of estimates in OPEC countries rather than from new discoveries.
Increasing cost
The problem, however, isn’t that oil is running out, but that it risks becoming unaffordable. Skrebowski, who reckons we will hit peak oil some time between 2013 and 2014, argues that the growing demand for oil in developing countries is bringing the problem into extremely short-term focus. ‘Oil has proved stunningly successful and has wormed its way into every significant aspect of our lives because it was cheap and plentiful,’ he says. ‘But it stopped being cheap and plentiful in 2005. Even the oil companies admit that it’s getting more difficult to get the stuff out. It’s not that we’re running out of oil – it’s that the oil we want now comes at a high cost. There may be lots of oil left in the world but if we can’t afford it then it’s no damn use.
‘At the end of 2004, there was a huge surge in demand and more or less every wellhead was turned on,’ he continues. ‘We dampened demand in the West to meet demand in China and India – that’s the only reason why the whole thing didn’t crash and burn. We’ve essentially used all the low-cost oil, and from now on in, we’re left with the high-cost oil, and our economics can’t really cope with that – there’s not enough money in the global system.’
There are sceptics, and, unsurprisingly, they tend to come from within the oil industry. ‘We aren’t believers in peak oil,’ says Robert Wine, a spokesman for BP. ‘We think there are still lots of hydrocarbons in the ground around the world. Some of them are known, some are yet to be discovered. The problem is above the ground – it’s not the geology, it’s the politics and economics. We’re looking at a peak in demand rather than a peak in supply. Demand will probably drop off before the stuff physically begins to run out.’
Yet even BP acknowledges a world without oil. ‘We’re looking at decades, not 15–20 years,’ Wine says. ‘At the moment, we have a small renewable arm, and our main business is hydrocarbons. There will be a time 70–80 years hence when we will be in the reverse situation.’
Scraping the barrel
Those who argue that the world’s oil reserves remain buoyant point to enhanced oil recovery techniques that have utilised higher rates of recovery from conventional wellheads and enabled oil companies to make exploitation in remote, difficult or deepwater sites commercially viable. The showcase technology is three-dimensional mapping. BP’s operations at Prudhoe Bay in Alaska had an originally identified oil resource of 25 billion barrels, but seismic remapping of the oil field, augmented by infill drilling and improved waterflooding (whereby water is injected to displace residual oil) has generated an additional 1.2 billion barrels – a five per cent increase.
Yet such activity strikes many observers as – perhaps literally – scraping the bottom of the barrel. In March this year, US president Barack Obama gave the green light for Shell to drill in the Chukchi Sea between northwest Alaska and northeastern Siberia, a region believed to hold 15 billion barrels of oil. Even more controversial are projects to recover oil from tar sands.
The Athabasca tar sands project in Canada’s Alberta province, comprising Cretaceous-era sands saturated with oil spread over 138,000 square kilometres of land (an area the size of Florida), has captured the headlines and crystallised protest movements. But Canada isn’t alone – Venezuela has identified similar deposits alongside the Orinoco River. More than one million barrels of oil are being produced a day from Canada’s tar sands – a thick, viscous mixture of sand, water, clay and bitumen – but campaigners point out that greenhouse gas production from the operations is five times higher than conventional oil extraction and by-products include high levels of contaminated water.
Some observers argue that such activity, spurred on by the concept of peak oil, misses the point. ‘It’s so difficult for politicians to accept the concept of peak oil,’ says Aleklett. ‘We need to plan long term, longer than a normal political term. Food on the table is the most important thing, but that requires energy. We need to address the problem of the global population – the energy we need to produce food is equal to around 12 million barrels of oil equivalent. Our economy depends on oil – there has never been an increase in the global economy without an increase in fossil fuels.’
Perhaps unexpectedly, the IEA agrees with this view. ‘To seek a date for peak oil is the wrong approach,’ says Birol. ‘Even if we postpone the time when peak oil comes, we can’t assume there won’t be difficulties in oil supply. We have to prepare ourselves for difficult days to come – not today, or tomorrow but at some point in the future. We have to leave oil before oil leaves us.’
Adapting to alternatives
Some choices and changes may even be beneficial, according to Skrebowski. ‘There are some relatively benign adaptations we will make,’ he points out. ‘A quarter of oil in the UK is used for commuting, but more encouragement to work from home will be widely recognised as a good thing. But increasing oil prices will translate to higher air fares, which people won’t be happy about.’
Transport, accounting for 95 per cent of oil use, is the focus of attempts to soften our entry into the peak oil world. ‘A priority is to develop technology to take oil out of cars,’ says Birol, pointing to burgeoning research in this field in China. ‘I’m really hopeful, because China is placing a lot of emphasis on alternative transport fuels. Our forecasts suggest that China will account for around half of all global oil use, so this would be very significant. China was traumatised by the high oil prices of 2008 and doesn’t want to be a victim of that again.’
The geopolitics of a peak oil world, with most oil being sourced from autocratic governments, are likely to keep diplomats busy over the coming years. ‘The strong depletions in non-OPEC countries are very important,’ says Birol.
‘The bulk of declining fields are operated by international oil companies. The growth of oils will come from national oil companies. This is a big change – when private companies produce oil, they sell on the basis of supply and demand. In the future, there may be other factors – in many oil-producing countries, oil is the major economic tool, so some of them will look to see oil prices on the higher side and obtain higher revenue. That’s a legitimate approach for them to take, but it means oil and geopolitics will be more and more intertwined.’
Either way, most experts suspect that those who envisage a prelapsarian society emerging from the post-oil-dependent world will be disappointed. ‘I’m suspicious of people with a political agenda who feel we ought to be living in a significantly different way, living in a yurt and spinning dog’s hair into a warm winter coat,’ says Skrebowski. ‘Humanity more or less likes what it’s doing and I think there are an awful lot of smart people out there.
‘The problem is that at the moment, no-one really sees the reason why they should apply themselves,’ he continues. ‘If we muddle through, things will eventually work out, but there will be a clunky and unpleasant intervening period where the economics will be really quite brutal. It isn’t that fuel is running out – it’s the pressure on the system. The more time we give ourselves, the more chance we have for technology to provide the solutions. We can make the transition more or less as difficult as we care to – what we can’t do is to keep ignoring the issue.’
Finding solutions
Gazing into his crystal ball, Birol feels that it’s possible to be optimistic. ‘In 20 years’ time, I would like to see a system where oil still has an important role, but where alternative technologies are picking up and there has been a substantial growth in renewable energy. That would give us a less dense, less heated energy market. I’m hopeful, but it would be pushing the bounds of reality too much for me to say I’m sure about it. There are countries making a concerted effort to get to that point, but to say they all are would be to go too far.’
The echoes of the OPEC crisis may also provide some reassurance, says Aleklett. ‘It’s easy to forget that we have experienced peak oil before – in the 1970s and 1980s. When OPEC turned off the taps, we had ten years when we used less oil than we had before. People who lived through those times say it wasn’t too bad. We are humans, we can and will adjust. There’s no silver bullet, but there is a generation of people now who are eager to find solutions.’
Major oilfields in decline
Around 70,000 oil fields are currently in production, according to the UK’s Industry Taskforce on Peak Oil and Energy Security (ITPOES). Yet the vast majority of these produce oil in small and negligible volumes: 120 fields account for half of global production, and there are just four fields that produce – at least until recently – more than one million barrels a day: Ghawar in Saudi Arabia, which accounts for five per cent of daily world production; Cantarell in Mexico; Burgan in Kuwait and Da Qing in China. The concern about these oilfields, say the authors of the ITPOES report, The Oil Crunch, is that they are quite old, at or near the peak of their production, and no new finds of similar size have been reported for a long time.
In 2004, an energy investment banking firm, Simmons and Company International, published a peer-reviewed paper suggesting that Ghawar’s northern regions were almost depleted and two other giant fields had peaked production way back in the 1970s. The findings were ferociously rejected by the Saudi government, even though its own data show that Ghawar produced 5.1 million barrels a day in 2007, compared with 5.3 million in 1997, concluding that the field is at the ‘plateau’ phase of production.
Cantarell, operated by Pemex, is located 100 kilometres off the coast of Mexico’s Yucatán Peninsula. Production peaked at 2.1 million barrels per day in 2004, but even then, Pemex forecast an annual 14 per cent decline in production. Last year, production stood at 772,000 barrels per day.
The difficulty of calculating peak oil
As will be clear from the main text of this article, there is a huge variation in predictions for when we will hit peak oil – from those who say it happened in 2008, right out to 2030 and beyond. These disparities are partly explained by the misunderstanding of what is meant by peak oil.
‘The majority of people think peak oil is a matter of oil supply,’ says the IEA’s Fatih Birol. ‘This is wrong. How much oil is left, how much oil we produce and how much oil we consume are all factors. If we demand too much oil, then the peak will be closer; if we use it more carefully, the peak will be postponed.’
The issue for peak oil is the rate of production, according to Steve Sorrell of the UK Energy Research Centre. ‘There is confusion between the size of the resource and the rate of flow of that resource – the issue for peak oil is the rate of production,’ he says.
Generally, it’s economists who point to dates further away and environmental scientists who feel peak oil is almost upon us. ‘The problem is that economists don’t see peak oil before 2030,’ says Professor Kjell Aleklett. ‘They are only looking at the tank and seeing that it’s full. They don’t see the problem with the valve that takes the fuel out of the tank – it can’t be made big enough.’
Those predicting an earlier date for peak oil have been criticised for crying wolf. ‘The reality is also that pessimists are likely to be proved wrong earlier,’ says Sorrell. ‘But forecasting is an imprecise science. The knee-jerk reaction is that warnings about peak oil have been wrong before, so they’ll be wrong again. But we’ve had relatively optimistic forecasts for regions that have been proved wrong, such as for the USA.’
Another challenge for dispassionate scientists is that it can be a struggle to obtain authoritative data to work with. ‘The quality of data on oil production is appalling,’ says Sorrell. ‘We don’t have reliable data on resources of oil-producing fields – they are often unaudited estimates and are probably misleading.’
It looks as if this uncertainty will only be resolved when everyone agrees we have hit peak oil. ‘There’s a huge amount of uncertainty and disagreement over the data between petroleum economists and geologists,’ says Sorrell. ‘The latter look at the geological constraints of getting the oil out, while economists tend to look at supply and demand.’
June 2010
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