Oil prices, at their highest levels for more than a decade, are trending upward. Natural gas prices are going out of sight. Yet more blips in the ups and downs of fuel costs? Or, as many believe, the start of an era of ever-more-expensive energy?
Industry magazines have been tracking a controversy about “peak oil”: the notion that world oil production will soon outstrip demand.
Pessimists in this controversy, mostly geologists, are impressed that oil discoveries peaked worldwide in 1960, and have been running well below actual extraction levels since the early 1980s. On the other side, the optimists, mostly economists, believe human ingenuity can postpone the peak in oil production, perhaps indefinitely.
If the pessimists are right, potential demand will run far ahead of supply soon after 2007. This mismatch will raise prices to spectacular heights that will keep actual demand in line with the dwindling supply. The high prices will wreak economic havoc, as they are already doing to the airline industry. Worse will be shortages of the liquids that fuel more than 95 per cent of the world’s transportation and make modern civilization possible.
If the optimists are right, technological solutions will be found to keep the oil flowing. Prices will stay within reason, allowing the continuation of “business as usual.”
A dispassionate look at the controversy exists in a recent 103-page paper by the Society of Danish Engineers and the Danish Board of Technology, science adviser to the Danish Parliament. It doesn’t draw formal conclusions but makes several points worth restating:
1. There will be a peak in oil production, likely before 2020;
2. Forcing a later peak, if possible, will require huge investment in exploration and technology, which may well be wasted. Money would be better spent reducing oil use;
3. An earlier peak would be “less unfortunate” than a later one. With an earlier peak, there would be less worldwide dependence on cheap oil and a more gradual post-peak decline in production, which could be more easily accommodated;
4. The priorities of governments in energy matters should be to figure out when the oil-production peak will occur, and then to work to ensure that oil use peaks before the production peak.
The last point is profoundly important. It would mean high oil prices would be avoided, or their proceeds could go toward conservation rather than oil profits.
These challenges are more urgent than meeting Kyoto targets for greenhouse-gas emissions. Lack of adequate preparation for peak oil could result in catastrophe.
There’s much scope for reducing oil use. The U.S. government reports that the average fuel economy of light-duty vehicles (including cars, SUVs, and minivans) is 6 per cent better than its 1987 peak. Meanwhile, average horsepower has increased 76 per cent, and average vehicle weight is up 26 per cent. If horsepower and weight had stayed the same, the average light-duty vehicle could now use 58 per cent less fuel — not 6 per cent less.
Natural gas offers clues to what might happen with oil. It’s a North American rather than a world market. Production here seems already to have peaked, and prices are rising beyond anything anticipated. For natural gas, there is possible relief. Spare production in Algeria, Russia and elsewhere can be liquefied and shipped to North America.
But liquefied natural gas (LNG) is dangerously flammable and explosive. Logan Airport closes when an LNG tanker enters Boston Harbour to unload at one of North America’s four LNG terminals. The U.S. Coast Guard imposes a two-mile moving safety zone around each tanker. Nevertheless, new LNG terminals are proposed for more than 30 locations in North America, including several in Canada. LNG imports could at best provide temporary relief. The worldwide peak in natural-gas production may not be far behind the peak in oil production.
What about hydrogen, proposed by many as the panacea for energy woes? More than 90 per cent is produced from natural gas, already in short supply, and no other mass production method seems feasible.
We are seeing the end of cheap energy, which shapes every aspect of how we live, and even sustains a far larger population than the planet could otherwise support. It’s time to stop complaining about pump prices and start figuring out how our dependence on fossil fuels can be dramatically reduced.
Richard Gilbert is an energy and transportation consultant.