A rash of papers, comments and interviews have made us think this recently. It’s not as simple as ‘policymakers are waking up to peak oil’, but that all those groups — and indeed, industry — are increasingly talking about the same issues looming in fossil fuel production, even if they’re using different terminology.
It’s still the rare politician or industry executive who would use the phrase ‘peak oil’. But in the UK, a country for whom domestic oil production decline is very much a concern, the issue has become almost mainstream.
Chris Nelder has written a couple of posts this month about UK officials ‘waking up‘ to peak oil, which he says was generally considered a “tinfoil hat theory” just a few years ago. But we’d argue it goes further than that: at the same time, those who talk about peak oil are increasingly looking at the language and dynamics which these officials are interested in, namely the economics of supply and demand and of course, pricing.
Last month the country’s former chief scientist, Sir David King, co-authored a report saying that oil reserves had been overstated, and hinted that the IEA’s assessment was not completely objective, due to a need to keep its member countries happy. “It’s critically important that reserves have been overstated, and if you take this into account, we’re talking supply not meeting demand in 2014-2015,” he toldthe Telegraph.
Richard Branson, probably the UK’s most famous entrepreneur, spoke at the February launch of a new report by the UK Industry Task Force on Peak Oil, of which his UK trains company is a member. British energy minister Lord Hunt later met with the group to discuss what the government response should be.
Last year the UK Energy Research Council, a body established on King’s recommendation to bring together government, industry and academia, published a report warning of “a significant risk of a peak before 2020″.
Such a convergence is less obvious in the US, excepting the recent report by the US Joint Forces Command. However that report, in contrast to the impression given by some of the reporting around it, maintains that all this depends on capacity — for example:
The central problem for the coming decade will not be a lack of petroleum reserves, but rather a shortage of drilling platforms, engineers and refining capacity.
…
A severe energy crunch is inevitable without a massive expansion of production and refining capacity.
What is more striking about this report is that it talks about the possible effects of such a ‘crunch’:
While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall might produce, it surely would reduce the prospects for growth in both the developing and developed worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and failing states further down the path toward collapse, and perhaps have serious economic impact on both China and India. At best, it would lead to periods of harsh economic adjustment.
Again in the US, there was recently a kerfuffle over comments by Glen Sweetnam, a senior official in the EIA, to Le Monde:
I agree, if the investment is not there, a chance exists that we may experience a decline. If we do, I would expect investment in new capacity to increase if there is still demand for oil.
These comments, too, hardly seem outside the mainstream - Total’s chief executive Christophe de Margerie, for example, has gone further, predicting output will never exceed 89m b/d. In fact, Sweetman’s comments are also milder than some made by Fatih Birol in FT Energy Source last November (our emphasis):
As I have already said, we do not project total oil production (including crude oil, natural gas liquids and unconventional oil) globally to peak before 2030 in either of our scenarios –
provided that adequate investments are made in exploration and development.
Adding:
But
the uncertainties with respect to remaining oil resources and investment are so great that we cannot be entirely confident that it will be possible to continue to increase world production.
When many of the world’s energy ministers met in Cancun last month, we can guarantee (although the media was not allowed in) that the phrase ‘peak oil’ wasn’t mentioned much, if at all. But we would be quite willing to bet that phrases like “supply crunch” were used quite frequently.
It’s also very likely that all the meeting’s participants accept that new oil reserves are becoming more difficult to find, and what is found is getting more difficult to extract, and therefore more expensive. That is because the mainstream view of oil prices is that they need to be high enough to guarantee investment in future supply.
Even net oil importers accept this openly - it’s difficult to argue with, after all. As a result, there is little surprise that ministers from both oil importers and oil exporters were in agreement that price volatility is the real enemy.
At the same time Colin Campbell, a geologist who has written extensively about peak oil,told Reuters this month that he envisaged pricing would dampen demand for oil:
“Peak oil drives prices up in the first place. It has its own mechanism. We’re sort of at peak demand right now [...]
This did not rule out the possibility of social dislocation and anger, he said.
Converging?
We’d venture that several things have kept talk of peak oil apart from the mainstream: a disagreement over the effect of price on demand, and a perception that many interested in peak oil simply predict overly dramatic, armageddon-style trajectories that sober-minded policymakers see as overblown.
But predicting the possibility of social upheaval isn’t always alarmist. Some economists and financiers have hinted at the possibility of unrest during the current financial crisis -Albert Edwards and Jim Rogers, for example.
And of course Jeff Rubin, a former chief economist at investment bank CIBC Capital Markets, has written an entire book of predictions about what various adjustments to higher-priced oil will mean.
Arguments about when the peak has occurred or will occur, and how the world will respond, are bound to continue - we are probably not going to see friendly exchanges between Matt Simmons and Dan Yergin any time soon.
But almost all oil market analysts predict price increases over the next two years — so presumably they don’t think Saudi spare capacity is going to be enough to offset the supply squeeze. Goldman Sachs’ own analysts predicted $200 oil, remember. And in fact they are now forecasting $99 oi lin the next 12 months - and they are not alone in forecasting prices that are
abovelevels widely considered to be a threat to economic growth.
The debate is beginning to converge around a few central issues: how will economies that developed on cheap, abundant oil deal cope with the transition to expensive, scarcer oil? What will it mean for the emerging economies hoping to emulate those growth patterns? And finally, how will this play out in terms of pollution and climate change?