Wednesday, May 16, 2007

Between Peak Oil and Climate Change

By Dan Welch
Editor of

”A surplus of available energy is a remarkable historical and biological anomaly. A supply of oil that exceeds demand has permitted us to do what all species strive to do - expand the ecological space we occupy - but without encountering direct competition for the limiting resource” George Monbiot

“Governments are in denial about the scale of what is needed to be done. We are moving into a new world without maps.” Chris Skrebowski (editor of Petroleum Review)

The era of cheap oil is over. Increasingly, informed observers are coming to the conclusion we are near the peak of oil production. When we move past the peak we enter an era when the forces contributing to global warming are likely to increase rather than decrease. If we are to tackle climate change we need to develop a strategy of ‘powering down’ from the peak and managing the transition to a sustainable world. The alternative is accelerating climate change and competition over dwindling resources.

What is ‘peak oil’?

Not so many years ago the idea that the world’s climate was warming up due, largely, to the burning of fossil fuels was considered outlandish by mainstream science and was unheard of by the general public. Today the vast majority of scientists agree that to avoid radical changes in temperature and climate chaos action is urgently needed to reduce green house emissions. ‘Global warming’ is now an everyday phrase.

In the last couple of years another phrase, ‘peak oil,’ has begun moving from obscurity to the mainstream. A few years ago you would be unlikely to hear the term used except by a small group of ex-oil industry geologists and engineers who disagreed with the statistics that the oil industry published. In the last year you might have come across the phrase in Time Magazine , in a pull out supplement in The Independent , on a popular financial advice website or even in the US House of Representatives .
Peak oil theory states that oil production in any given area follows a bell shaped curve when charted on a graph, with the peak of production occurring when approximately half of the oil has been extracted. In the US for example, oil production grew steadily until 1970 and declined thereafter, regardless of market price or improved technologies. The amount of oil discovered in the US has dropped since the late 1930s; 40 years later, US oil production had peaked, and has fallen ever since. Similarly North Sea production is declining at an increasing rate, having peaked in 1999. World discovery of oil peaked in the 1960s, and has declined since then. If the 40 years gap between the peak of discovery and the peak of production in the US holds true for world oil production, that puts global peak oil production right about now. The exact time at which the peak is reached will only be known in retrospect.
So the idea of peak oil is not that oil is running out it is the idea that the world reaches a point where there is never any further increase in the amount of oil being produced; after that point oil becomes less available, and more and more expensive. Supply cannot meet demand; and demand is increasing rapidly. What has really changed the picture regarding world demand is the economic growth of China. Chinese oil demand doubled within the last ten years; it is predicted to double again within the next 15 years.

Does the oil industry agree that the world is at or near peak production? Officially, no. And the industry has a strong incentive not to, because share prices depend heavily on how much oil companies claim to have in their reserves. Shell was forced in January 2004 to admit it had lied about its reserve figures, which were over-estimated by 20%. The Chief Executive and Head of Exploration were forced to resign and Shell directors are currently facing criminal charges in the US for misleading their shareholders. Shell’s replacement CEO, Mr. van der Veer told the press in November 2004 “There is something strange going on in this business”. The Economist noted: “Industry analysts and investors are quietly saying that Mr van der Veer may be right, and another big reserves scandal may be brewing somewhere.”1

There is intense disagreement concerning how big the oil reserves are and how much reasonably can be expected from future discoveries. The more oil in the ground the later the peak of production will be. But companies and countries report their figures for reserves without any independent verification and so the statistics are hotly contested.

The reserves in the Middle East dwarf those elsewhere. Saudi Aramco, the Saudi state oil company, is 20 times bigger than ExxonMobil, the largest Western oil corporation. Between 1988 and 1990 the Middle Eastern members of OPEC (the Organisation of Petroleum Exporting States) announced huge increases in their reserves, of between 42% and 197%.2 Very little new exploration had been done so where was all this new oil coming from? According to OPEC rules the amount of oil member states are allowed to produce and sell is determined in relation to their level of stated reserves. With double the stated reserves they allowed themselves to sell double the oil. When the industry or governments tell us that the peak of oil production is a long way off they are basing this claim on these uncorroborated figures. The US and UK governments did not trust Saddam Hussein when he said he had no weapons of mass destruction. They have had no such qualms in believing his figures for oil reserves.

Dr Mamdouh Salameh, an oil consultant to the World Bank, estimates there is a 300-billion-barrel exaggeration in OPEC’s reserves.3 This ‘exaggeration’ amounts to about 100 years of consumption at today’s rates, or about 13% of the total amount of oil the International Energy Agency claims has been or ever will be discovered in the world.4

But surely huge new oil reserves might yet be discovered? There is still oil to be discovered but nothing like enough to dent the current rate of depletion of reserves.

Shell’s “Global Scenarios to 2025” report states that world discoveries peaked around the mid 1970s (others place this in the mid 1960s)
; it goes on to say fewer discoveries were made last year than any year since 1952; discoveries only replaced some 45 per cent of production since 1999; the average size of discoveries is consistently falling. According to Shell’s own statistics in 2005 it only discovered new reserves to replace 15-25 % of its production.

So why should we worry about peak oil?

You could be forgiven for saying at this point, “Hold on, the greatest global challenge we face is global warming and the surest way to slow the increase in global carbon emissions is to reduce our consumption of fossil fuels and accelerate the transition to alternative forms of energy – in which case peak oil is the best news we could possible have!”

But before we start celebrating we should take a step back and ask ourselves if we really know what we’re celebrating.

How are the oil corporations likely to respond to the peak? We already know. In the first week of February at a press conferences in London journalist David Strahan asked the CEO of Shell whether the company had done any detailed modelling on peak oil. Mr. van der Veer replied that that peak oil is correct as applied to regional areas of production but does not apply to the world as a whole. Mr. van Der Veer’s justification for this statement was that an unquantifiable level of reserves lie in “unconventional oil” and coal.5

“Unconventional oil” is not liquid oil pumped out of the ground, it is synthetic oil derived from ‘oil shale’ or ‘tar sands’. As oil becomes more expensive so more expensive processes to produce oil become economical. Tar sands are mixtures of mud, sand and bitumen. In order to extract oil the normal process is to strip mine the sands and then separate the bitumen from the sands with high pressure steam and then process the bitumen into synthetic crude. The production of synthetic crude produces vastly more greenhouses gases than conventional oil production. In conventional oil production the amount of energy used in the process compared to the amount of energy that can be generated from the resulting oil is on average a ratio of 1 to 30 – you get 30 times more energy out than you put in. In the production of synthetic crude from tar sands you get a ratio of about 1 to 1.5 – you get half as much again as you put in. And where does the energy to input into the process come from in the first place? From natural gas. We are now burning 1 energy unit of less polluting natural gas to make 1.5 units of more polluting oil.

And what of coal? Through a process called liquifaction synthetic oil can be produced from coal. Again coal liquifaction produces far more greenhouse gases than conventional oil production. Why import oil from unstable parts of the world when you can cook up your own diesel at home? Especially in the US, which has huge coal reserves. Neither coal reserves nor unconventional oil have the capacity to solve the ‘permanent energy crisis’, they are just one, highly destructive, part of a strategy for slowing it down.

Jeremy Leggett has argued that “amid the ruins of the old energy modus operandi many will try to turn to coal, and so the extent to which renewable energy grows explosively instead of coal expansion, rather than alongside it, will determine whether economies and ecosystems can survive the global warming threat.” He calls this ’solarisation’ versus ‘coalification’ and the struggle between these two approaches will define the era of peak oil.

At the point that it is widely realised that the peak has been reached there is likely to be panic buying of supplies, pushing the price up further, and panic selling on the stock market, raising the spectre of a global financial crash. There is the very real possibility of a global depression on the scale of the 1930s…or worse.

If we look at what would be likely to happen in simply a global economic downturn, rather than a more dramatic collapse, there would be little development in sustainable technologies, because so little capital would be available for investment. Moreover, the fossil fuel industry is a major source of tax revenue for western nations, which is a disincentive to cutting greenhouse gas emissions. In an era of economic crisis and high oil prices states have a vested (short term) interest in oil consumption.

In a world of dwindling oil supplies and no viable strategy for a transition to a post-peak economy we would expect to see intense competition over remaining reserves, heightened geopolitical tensions and wars over resources.
Michael Meacher, the former environment minister, warns that the scale of the change required in the world economy is “nothing short of apocalyptical. Our whole civilisation is overwhelmingly dependent on oil.”6 Everyone involved in issues of sustainability knows that the world is operating far beyond its carrying capacity. It can only do so on the basis of readily available cheap oil. But if you pull the plug on cheap oil without viable strategies to manage the transition you do not get a sustainable society, rather an industrial society in economic and social freefall.

Dealing with the peak – powering down

Meacher calls for an immediate, if temporary, “bridge” economy that shifts demand from oil to gas, imposes taxes on heavy users, rebates on cars that use little, and carbon budgets for each sector. Beyond that, Meacher recommends a massive global energy conservation drive and putting more international pressure on the US to use less.
A study completed for the U.S. Department of Energy on strategies to mitigate the effects of world oil peaking gives us some indication of the urgency of the challenge. It is worth noting that these mitigation strategies involve not only the development of renewable energy technologies, conservation and efficiency drives but also the exploitation of unconventional oil resources and coal liquifaction. The report takes no account of the issue of climate change. The three scenarios are based on “the fastest possible implementation – the best case”:7

  • Scenario 1 – if mitigation strategies were implemented 20 years before peaking we would manage to avoid any major oil supply shortfalls for a significant time, allowing more time to develop renewable fuel alternative

  • Scenario 2 – if mitigation begins 10 years before peaking there would be roughly a 10 year period of oil supply shortfalls. The situation would be 2-3 times as bad as the energy crisis in the 1970’s, but after a decade of world-wide economic depression, things would begin to get better.

  • Scenario 3 – if mitigation begins at the time of peaking it would leave the world with severe oil supply shortfalls for 2 decades or longer. This could result in permanent damage to our world’s economy.

In other words delaying the implementation of mitigation strategies is like waiting until you’re thirsty before you begin to dig a well.

Richard Douthwaite, a former UK government economist now working on a study of oil depletion for the Irish government says, “What do you do when a vital commodity becomes scarce? The rich cannot be allowed to take it all. The only option may be for a world rationing system for oil.” Handled correctly, he says, the lower output of oil may be environmentally and socially good. “It gives us a chance to change a lot of things that are clearly going wrong now. The climate crisis and the energy crisis are coming together.”8
Just as the first step towards stopping climate chaos has been to communicate the reality of global warming, the first step in mitigating the effects of the ‘permanent energy crisis’ is to communicate the reality of the challenge the world faces. The statistical arguments over the size of oil reserves may seem off putting, but they are significantly less complex than climate science. As with climate change the challenge is to communicate how serious the challenge is but to communicate a positive vision of what we are collectively trying to achieve. Research has shown that people are rarely motivated to act by threats to their survival – just think about smoking. In fact research commissioned by the UK’s government on how best to communicate climate change shows people are rarely even motivated by long term threats to the survival of their children.
We have to think about climate change and peak oil as interconnected challenges and we have to articulate a positive vision of what Richard Heinberg calls the strategy of “power down” - “The path of co-operation, conservation and sharing… in order to reduce per capita resource usage in wealthy countries, develop alternative energy sources, distribute resources more equitably and humanely but systematically reduce the size of the human population over time.”9
This strategy can and is being systematically implemented on a local scale. For example, Rob Hopkins, a permaculture practitioner, has developed a practical approach that he calls ‘Energy Descent Action Planning’and applied it to planning a ‘power down’ strategy for Kinsale in Ireland. Grassroots organisations such as Action for Sustainable Living have a crucial role to play in making this vision a reality.
On a global level we need the equivalent of Kyoto for peak oil. Such a protocol was proposed last year at the Rimini Oil Depletion conference. The Rimini Protocol proposes a strategy:

· to avoid profiteering from shortage, such that world oil prices may remain in reasonable relationship with production cost; to allow poor countries to afford their imports;
· to avoid destabilising financial flows arising from excessive oil prices;
· to encourage consumers to avoid waste;
· to stimulate the development of alternative energies

The end of the cheap oil era is a historical cross roads - one path leads to an era of increasing competition for resources, war and possible systemic collapse; the other demands a massive commitment to developing renewable energy resources, localisation and positive systemic change.

1 Quoted in Leggett, J. Half Gone, Portabello Books, 2005
2 Mobbs, P. Energy Beyond Oil, Matador 2005
3 Quoted in Leggett, J. Half Gone, Portabello Books, 2005
4 Mobbs, P. Energy Beyond Oil, Matador 2005
9 Heinberg, Richard,PowerDown: options and actions for a post carbon world Clairview 2004

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