Tuesday, January 29, 2008

Is peak oil here?

I have recently finished reading Jeremy Leggett's excellent book "Half gone. Oil, gas, hot air and the global energy crisis." Of course I had heard about peak oil before, and I had tried to get my head around what it all means, but this book really hit the message home for me. Leggett is a credible witness given his long-standing background as a consultant for the oil industry, where he worked as geologist for many years. He later became a campaigner for Greenpeace International and now works in the renewable energy sector. (For more information, see his profile at The Guardian.

Essentially, peak oil is the theory that oil production will roughly follow a bell curve. Production increases until it hits the top of the bell curve, the "peak", after which oil production goes into steady decline. However, because consumption continues to increase, the decline has a significant effect on the availability and the cost of oil as the gap between increasing demand and decreasing supply widens. According to Leggett, there are many industry experts who believe that oil production may have peaked in 2005. His book was published in November 2005. At the time, Leggett predicted that oil prices may well hit $100.00 a barrel by 2007. I think we can say that he was spot on with that prediction.

Peak oil does not mean an end to oil. However, it does mean an end to cheap oil.

And that has many implications which go far beyond the price of petrol to run our cars. Almost every part of modern life is dependent on oil. Food production is a major consumer of oil, medicine, transport, plastics, computers, virtually everything we do and own depends on oil. The so-called "green revolution" which has provided us with plentiful cheap food for the last number of decades, is totally dependent on cheap oil for the production of artificial fertilisers and pesticides and for the running of industrialised farm machinery and the transport of the final products.

One would think that an issue of that importance would be on the forefront of concerns for every government and every citizen. This is not the case, not least because the oil industry has been very successful in keeping the level of possible oil supply and oil reserves more or less secret, and assessments of how much oil is left and when we may hit peak oil are hard to make. It is therefore highly significant that Jeroen van der Veer, Shell’s chief executive, has now admitted that peak oil is near. According to The Times newspaper of 25 January 2008, he "said in an e-mail to the company’s staff this week that output of conventional oil and gas was close to peaking. He wrote: 'Shell estimates that after 2015 supplies of easy-to-access oil and gas will no longer keep up with demand.'"

Similarly, Matt Simmons alerted Americans early in 2007, that peak oil is here and that we very urgently need to start working on solutions for a post-oil era. Simmons should know about the subject. He is the Chairman of Simmons & Company, the "only independent investment bank specializing in the entire spectrum of the energy industry. Founded in 1974, the firm has acted as financial advisor in over $102 billion of transactions, including 491 merger and acquisitions worth over $69 billion." (for more information see the Simmons and Co website). Below is an interview with Matt Simmons which was first broadcast in early 2007.

I had been naive enough to believe that peak oil may be good for climate change - everybody has to use less and become more energy efficient, we would produce less CO2 from burning oil as we had less available. Unfortunately, this may not be the case at all, as the increase in cost for crude may make other options more attractive, such as oil from tar sands, gasification of coal or simply a massive increase in the use of coal for power generation. All those options are very carbon intensive. The recovery of oil from tar sands not only produces masses of CO2, it also requires large amounts of water, another natural resource that is in increasingly short supply on this planet.

According to the article in the Times, Shell has produced two possible future scenarios:

"The first scenario, “Scramble”, envisages a mad dash by nations to secure resources. With policymakers viewing energy as “a zero-sum game,” use of domestic coal and biofuels accelerates. It is a world, said the Shell chief, where 'policymakers pay little attention to energy consumption – until supplies run short.'

The alternative scenario, “Blue-prints”, envisages a world of political cooperation between governments on efficiency standards and taxes, a convergence of policies on emissions trading and local initiatives to improve environmental performance of buildings."

I fear that currently we are in the middle of scenario one. The Iraq war clearly was driven by a "mad dash to secure resources". Hopefully, one lesson learnt from that horrible war will be that this is not the way to go.

There are also indications that we may be able to switch to the second scenario, particularly if we get a real change in US politics after the next presidential elections. Emissions trading in Europe, talk about setting up emissions trading schemes in Australia and in several States in the US, a renewed focus on energy efficiency, these are all positive steps in the right direction.

The question is whether we have waited too long, lulled by a false sense of security. Economists tend to assure me that the market will fix it and respond with new technologies. I am not sure that the market can be left alone to sort this out - clearly, so far the market has failed because it has been distorted by special interests and lack of openness and accountability by the major players, including the oil industry and their proponents in the White House.

It will be interesting to see whether we are capable of coming up with alternative solutions in the short term, or how long it will take if we are indeed running out of oil, given that all our technologies are based on oil. There are indications that at least some companies are starting to take note. According to a report in the Sydney Morning Herald of 15 January 2008, Rick Wagoner, chairman and chief executive of US car manufacturer General Motors recently announced that oil production has peaked and the switch to electric cars is inevitable. However, GM will not have an electric car ready until at least 2010, and the technology simply is not there yet for mass production.

Again, my initial joy at reading about this development (clean, green cars!?) was quickly dampened by the realisation that these cars would only be "green" and greenhouse neutral, if the electricity comes from renewable energy sources, not coal fired power plants.

The double whammy of peak oil and climate change does make for some interesting challenges ahead.


  1. Of course remember that 50% of car trips are under 5km in distance. That to me is a perfect distance to travel by bike. While not the complete solution the bike does have to be in the picture as part of the solution.

  2. It is a huge dilemma and the problem is what do we as the little people do about it.

    Ultimately I think it is only increase it price that brings it home to people that they should be more conservationist with energy, although we just seem to be taking $100 per barrel oil in our stride.

    I walked to a meeting today, five minutes away from my house. Another neighbour drove. It wasn't even raining so that wasn't an excuse.

    Interesting post Chervil. No easy answers, are there?

  3. D read something at Uni a couple of years ago, we probably have it in storage in Hume!! It was about change management and the author asserted that the biggest change facing governments/business in the future will be that caused by the end of oil. He believes that millions will die - starve to death, that we will go back to pre-stone age civilisation (if you can call it that).

    We have over fertilised the earth to increase food production, the earth can only support so many people and without the stimulous of carbon based fertilizers it will no longer be able to support all of us. We think that those of us who survive will be living in small communities, with subsistance farming. We will rely on 'old world' skills, things that we can do without electricity. It will be the end of globablisation. Sadly and frighteningly I think it is a realistic if we do not make changes NOW, your post is very interesting. I think we need to have faith that we CAN survive but we have to work hard now and what ever the outcome, at the end of oil the world will look very different to the one we live in today.

    Of course we are now experienceing lack of water all over the world and some scientists are now stating that this, instead of loss of oil, will cause the biggest problems.

    Either way, I think we are in trouble, we have to do what we can to ensure our children's survival and therfore ensure they have the skills to live in a post oil/water short world. Grow food, work with wood, make clothes, manage animals etc