Commentary by Margo Kingston
February 6, 2005 12:36 PM

G’day. There’s been a fair bit of debate in Webdiary lately about whether or not the world is on the verge of an oil crisis, so I asked Webdiarist Ian McPherson, who’s taken a close interest in the issue, to write a piece. Ian writes:

“I am a graphic designer and writer working out of my home in Crows Nest, Sydney. I spent most of his career in the advertising industry until deciding to start my own business. I was brought up correctly as a small l Liberal voter from the southern suburbs, remaining unchanged until the run up to the second Iraq war when I dumped the Liberals for The Greens. Since then, I’ve has been researching resource depletion issues, global warming and the environment in an effort to engage, discuss and hopefully educate on the issues. I may now be accurately described (or insulted) as a small l lefty, with a dislike for privatisation, corporate power and the destruction of the environment.”

A brief explanation of peak oil

If you graph the production profile of an average oil well, it looks like a mountain. Two steep sides and a peak. Production rises from first extraction until the well “peaks” in output. After production peaks, output falls and the well is said to be “in decline”. Similarly, the available data can be combined and graphed to predict the peak in world oil production, which again resembles a mountain.

In the case of the world oil data, there is growing consensus amongst petroleum geologists that the peak in oil production will occur sometime between now and 2020. After that point, world oil production will be in decline, as we will have passed the point where we have extracted half the world’s oil reserves.

A consequence of this decline is expected to be the inability of oil producers to ever meet world demand again. This will endanger the structural integrity of the global economy

Peak oil in Australia

Peak oil production in Australia is expected to occur this year, according to Duncan’s World Oil Forecast #5 presented at the 2000 Summit of the Geological Society of America. In 2000-2001 we imported 62% of our crude oil, primarily from Vietnam and the Middle East, and the figure is rising.

Peak oil by year, by region

Broken down by region, the situation is as follows, again from Duncan’s World Oil Forecast #5. North America 1983 (past peak), South & Central America 2006, Europe 2006, Former Soviet Union 1987 (past peak), Middle East 2009, Africa 2006, Asia-Pacific 2004. And what is Duncan’s estimate for the world peak? 2006.

The consequences of Peak oil

Two of the most obvious consequences of declining world oil supplies are rising prices and international resource conflict.

As supplies decline prices will rise for both oil and oil exploration. The remaining oil will be in smaller reservoirs in increasingly more difficult locations, like under the sea, under arctic ice or in oil sands.

Higher oil prices will be reflected in the price of food, transport, heating, plastics, automobiles, pharmaceuticals, prosthetics, contact lenses, computers, housing and much more. Then there’s the cost of petrol.

There is very little we consume or use in our lives that does not use oil in its manufacture. If we can build, sew, print or assemble it faster using machines that are reliant upon oil, generally we have. Dramatic price rises would affect the whole economy in a multitude of negative ways.

Michael T. Klare, professor of Peace and World Security Studies at Amherst College in the US, is an expert on resource conflict. The following is an excerpt from his book, Resource Wars: The New Landscape of Global Conflict (2001):

“Of all the resources discussed in this book, none is more likely to provoke conflict between states in the twenty-first century than oil. Petroleum stands out from other materials – water, minerals, timber and so on – because of its pivotal role in the global economy and its capacity to ignite large-scale conflict. No highly industrialized society can survive at present without substantial supplies of oil, and so any significant threat to the continued availability of this resource will prove a cause of crisis and, in extreme cases, provoke the use of military force.”

Many far gloomier predictions of the consequences of oil depletion have been made. They range from a collapse of the world economy, to a massive population dieoff from disease and famine, to being propelled back into the Stone Age. Matt Savinar’s website Life After the Oil Crash and Jay Hansen’s are examples of some of the more pessimistic predictions.

The Australian political response

Australian political response to this issue has been muted, to say the least. In May 2004, Deputy Prime Minister John Anderson stated on the ABC’s Insiders show that “at some stage in the next few short years global (oil) production may very well peak,” one of the government’s first admissions that a world oil production decline was approaching.

In October 2004, Hansard records that Kim Hanna in the South Australian Parliament presented a spirited call to action (it’s just before half way down a very long web page, under Oil and Gas).

In May 2004, Greens candidate Drew Hutton told The Age that “spiralling oil prices would force an economic crisis in Australia within 15 years if authorities fail to act now”. He was immediately shot down by a spokesman for John Anderson, who said that “to link current spiralling prices with oil reserves was ridiculous, given the instability of the oil-rich Middle East … the spokesman said the Australian Government, along with the United State government, was already taking the issue of depleting oil stocks very seriously and examining alternatives including ethanol and hydrogen.”

Yet, for all the seriousness of the issue, when the Prime Minister released the government’s white paper on Energy Policy in June 2004, Securing Australia’s Energy Future, the document did not mention Peak oil at all, let alone how serious an issue it is. It did speak about world oil supplies, but in rather dismissive terms.

For instance, on page 119 there are two interesting quotes: “In the longer term, concerns exist about the longevity of oil supplies” and “Despite increasing demand for oil, there are sufficient reserves to supply world demand for around 40 years”.

Forty years is hardly a long time, given that we will have to build sustainable infrastructures for agriculture, transport and energy capable of replacing what we currently use. The building and maintenance of these infrastructures will also require a lot of oil.

There were also some references to our own declining oil production in the Energy Policy white paper: “Our known oil reserves are significant, but are projected to decline in the absence of new discoveries.”

Significant? What hooey! Graphs on page 47 of the paper tell a different story. Australia has a mere .3% of the world’s remaining oil reserves, while the US has 4% and the Middle East has 66%. Geoscience Australia estimates, in fact, that Australian crude production will decline to half of 2003 levels by 2020.

Of the “dirty” energy resource coal, the situation is reversed. The US has 26% of the world’s remaining reserves, Australia has 8% and the Middle East has just .3%.

For all the talk of our mighty natural gas reserves, that’s not a particularly cheery story either. Australia has 2% of world reserves, the US has 5% and the Middle East has 36%. Thank goodness for East Timor, eh? 🙂

Only in uranium reserves are we truly a world leader, with 40% of the world’s known reserves. It’s a pity that much of the energy necessary to mine uranium currently comes from oil.

Now this is certainly not an exhaustive review of the government’s energy policy. That’s another story. These are just some of the highlights.

Why should we worry?

Every year, the world consumes four times as much oil as it discovers. World oil discoveries are declining in quantity and quality (the peak in world oil discovery was in the 1960s). China and India are rushing to industrialise and have kept OPEC producing flat out. Supply has been tight most of the year, and prices high.

Our own crude oil imports are growing, and we will increasingly have to compete on price for Middle East oil.

The Middle East was, for the first time, unable to stabilise oil prices by quickly increasing production during the recent price hikes, leading Dr Colin Campbell of the Association for the Study of Peak Oil and Gas to revise his estimate of the world peak of oil and gas production to 2008.

Dr Campbell commented:

“The present model departs from earlier ones in recognition that the Middle East no longer has sufficient spare capacity to discharge a swing role. A volatile epoch of recurring price shocks and consequential recessions dampening demand and price is now regarded as more likely, with terminal decline setting in and becoming self-evident by about 2010.”

In a rare comment on potential global oil supplies, BP exploration consultant Francis Harper told The Business magazine that he believed a peak would occur between 2010 and 2020, far sooner than the projections made by ExxonMobil and Shell.

If the Campbell and Harper estimates are anywhere near accurate, the Australian government has only a window of around 15 years to act on alternative energies, before oil becomes rare and enormously expensive.

It claims in its Energy white paper that Australia is fairly well protected from oil price shocks, and to this point that has been true. But Vietnam is expected to allocate more of its oil to domestic consumption and we will increasingly be reliant upon Middle East suppliers, who control around 66% of the world’s oil reserves.

Long range oil depletion planning also needs to initiated, and quickly. What has long been a buyer’s market will rapidly change to a seller’s market once it is established that the peak in world oil production has occurred. So far, John Howard has resisted a call for a strategic oil reserve, but the investment will make sense in the case of armed conflict abroad.

Take a look at Colin Campbell’s depletion graph. He estimates that oil and gas liquids production will fall to just over one third of current levels by 2050. Well before this, it will be clear that supply can never again match world demand and prices will skyrocket.

The alternatives

Oil has some very important advantages; it is easily transported, energy-dense (far more so than hydrogen), capable of being refined into gasoline, kerosene and diesel, and it is vital for transportation, heating, health, industrialised agriculture and more.

We are years away from developing sufficiently efficient alternatives at a comparable cost. We should have learnt our lesson during the oil shocks of the 1970s, but we stuck our collective heads in the sand and continued on with business as usual.

The government’s Energy Policy white paper outlines some alternative fuel initiatives. Heading the list are the usual suspects – diodiesel, ethanol, methanol, hydrogen and di-methyl ether.

George Monbiot wrote in November 2004 in The Guardian that “the adoption of biofuels would be a humanitarian and environmental disaster”. He estimated that if Britain switched to green fuels, it would require four and a half times the country’s arable land. Just converting to 20% biofuels would require almost all the UK’s arable land.

Some people are confused about hydrogen. Hydrogen has to be manufactured, and manufacturing hydrogen always consumes more energy than the resulting hydrogen will yield. Hydrogen should be viewed as more of an energy carrier, like a battery. Most hydrogen is currently manufactured from natural gas, which will eventually run out.

There are advantages to hydrogen, but that is another story. The main problem is building the infrastructure necessary to manufacture and distribute it, and building the machinery to run on it, while overcoming the political resistance from the oil and auto companies and cost resistance from the public.

Australia has enormous potential for solar, geothermal and wind energy. Infrastructure is again the issue. Large scale investment is unlikely while we still have reasonably cheap reserves of coal and natural gas.

Making the transition

There is the possibility, with an enormous investment, that we could substitute natural gas for oil in Australia, but what happens when the world’s gas depletes 20 years after oil? Do we then build another infrastructure, at an even more enormous cost, based on hydrogen? All in 40 years?

It is possible to make synthetic liquid fuels from coal too, but again it all comes back to infrastructure. Building the plants to convert the coal and mine the coal would be incredibly expensive. As for geosequestration – the Australian government’s idea to pump our coal emissions back into the ground – the technology is at a very early stage. Costs and consequences have yet to be established.

If we are to build a new energy system in Australia, one that works in the long term, it will need to combine demand and supply side dynamics. Consumers must actively conserve, industry must move to the sustainable management of our resources, and government must drive the agenda.

But is there the political, business or community will to make big changes fast? I doubt it. Most people are more interested in their mortgage than an energy problem in the future, and the big bucks are still to be made out of resources with a high profit margin. Some people believe that market pressures will supply a solution, but they will probably come too late.

The Howard government’s Energy Policy white paper is a combination document. It’s an investment guide to Australia’s existing energy infrastructure and a “feel good” document for consumers. The big bucks and the big incentives will still be staying with Big Oil, Big Gas and Big Coal for the immediate future.

Emissions from fossil fuels

There is more and more evidence that global warming, freak weather and falling water tables are intricately linked to the burning of fossil fuels and the generation of CO2 emissions.

The government’s Energy paper claims that reducing Australia’s emissions dramatically would have little effect on worldwide CO2 levels, and that may be correct. But it sets a poor example in the international community. What chance will we have in helping to persuade the US, China and India to cut their emissions dramatically unless we are prepared to cut our own?

To this point, the issue of emissions has devolved into an international bunfight, most recently crucified by the US, China and India, who are keen to use their reserves of coal to build almost 850 new coal-fired power stations.

Tony Blair’s government plans to reduce the UK’s carbon emissions by 60% by 2050. He and Swedish Prime Minister Goran Persson are jointly urging the EU to adopt the same plan. Germany is already ahead of the game, planning to reduce its emissions by 40% by 2020.

The Howard government’s target looks paltry by comparison. The Energy policy paper indicates we are on-target to matching the Kyoto 108% target, which is a growth of 8% over our 1999 emission levels by 2012. This, as most of the world’s climate scientists would agree, is simply out of date.

What would our society look like with less oil?

Cuba may give us some forewarning of what to expect. When the USSR collapsed in 1990, Cuba suffered an enormous oil shock when shipments from the USSR were no longer forthcoming. By 1993 there were no cars running, the public transport system collapsed and the streets were empty. How did they cope?

They imported two million heavy Chinese bicycles. They modified very large semi-trailers to transport three hundred people at a time. They took all their vehicles, large or small, motorised or animal powered, and built a mass transit system. Rickshaws are used in Havana while horse and carts are used in smaller towns.

They made a massive effort to rearrange their farming industry, adopting a system of local farms serving local communities and farms close to the cities serving the cities. They stopped transporting food long distances. They replaced petroleum-based pesticides with bio-pesticides and replaced tractors with oxen.

I’m not saying this is the model for Australia, but it gives you an idea of some of the social changes that may have to occur. Cuba was already a poor country, so they had a fair amount of animal-driven energy and low-tech solutions. We don’t have any of that. Living in a low-energy society is going to take some getting used to!

Richard Heinberg, author of The Party’s Over: Oil, War and the Fate of Industrial Societies and Powerdown: Options and Actions for a Post-Carbon World, believes that we must start now to manage the collapse of our oil-based fossil fuel system, facing the fact squarely that we will have to live a life that uses a lot less energy.

Richard speaks very engagingly on the issue of peak oil and its aftermath, and you can find an excellent collection of audio and video files on the web at Global Public Media.

Growing awareness of Peak oil

Thankfully, public awareness of the issue is growing quickly. National Geographic in the US featured a front cover story on oil depletion last year, and articles have appeared in Harpers magazine, The Guardian and even the New York Times and the Washington Post. Peak oil was also added to Project Censored’s top 25 censored media stories of 2003-2004 and there are an enormous number of web sites and blogs with useful information.

War and oil

George Monbiot, in The Guardian in 2003, threw down the gauntlet when he wrote that “the notion that the war with Iraq had nothing to do with oil is simply preposterous”:

“The only rational response to both the impending end of the oil age and the menace of global warming is to redesign our cities, our farming and our lives. But this cannot happen without massive political pressure, and our problem is that no one ever rioted for austerity. People tend to take to the streets because they want to consume more, not less. Given a choice between a new set of matching tableware and the survival of humanity, I suspect that most people would choose the tableware.”

I also find it hard to imagine that oil depletion had nothing to do with our involvement with the US and the UK in Iraq. Oil is empire. And the country that controls this vital resource will retain that empire as long as the reserves last.

In 1999 Dick Cheney, who was working for Halliburton at the time, made a speech at the London Institute of Petroleum. He stated:

“That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? Governments and the national oil companies are obviously in control of about ninety per cent of the assets. Oil remains fundamentally a government business. While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies. Even though companies are anxious for greater access there, progress continues to be slow.”

The “great oil game” continues in the Caspian Sea region today, where the US is competing with Russia for pipelines and access to the region’s important oil supplies. China is cutting deals with Iran on long-term oil contracts worth US$200 billion, while Russia is cutting deals with China on joint military exercises. The invasion of Iraq has had quite an effect on the international community – nowhere more obviously than in energy and defence.

Closer to home, there is a naval arms race in the South China Sea, where China, Malaysia, Vietnam and the Phillippines are all arguing over energy rights to the Spratly Islands, believed to stand on top of substantial oil and gas deposits. Japan and China are also contesting offshore oil and gas interests.

Michael T. Klare, professor of Peace and World Security Studies at Amherst College in the US, would also say that Iraq has everything to do with oil depletion. In this post at TomDispatch he details exactly how the US is transforming its military into a global oil-protection service:

“This, then, is the future of U.S. military involvement abroad. While anti-terrorism and traditional national security rhetoric will be employed to explain risky deployments abroad, a growing number of American soldiers and sailors will be committed to the protection of overseas oil fields, pipeline, refineries, and tanker routes. And because these facilities are likely to come under increasing attack from guerrillas and terrorists, the risk to American lives will grow accordingly. Inevitably, we will pay a higher price in blood for every additional gallon of oil we obtain from abroad.”

How long before our own troops follow in the footsteps of the US military, increasingly drawn into areas of strife to protect our reliance on natural gas or black gold. Oops, I forgot the East Timor “liberation”. I guess we’re there already…


OK. Here’s the problem. We are going to run out of oil, then gas, then coal, in that order. The world has a real energy crisis on its hands.

Australia’s government doesn’t know exactly what to do about it, except underfund vital new research and leave it to the markets. Unless there’s a technologic miracle, globalisation and our sprawling suburban lifestyle will be gone within this century.

Our system here in Australia, which freights milk from Victoria to supermarkets in Sydney and ships in sardines from the other side of the world at a low cost, is doomed.

None of the oil companies have any real argument over the concept of peak oil, or the fact that oil is a finite resource that will eventually become too expensive to extract and too hard to find. The only debate is over the timing.

For this reason alone, the sooner the government can engage with the public and convince them that it has a worthwhile plan, the better. This head in the sand thing is baloney, designed to soothe their mates in the auto industry, oil companies and the markets.

Here’s a quote from Daniel Quinn in 2000 that pretty well sums it up:

“If we continue… to consume the world until there is no more to consume, then there’s going to come a day, sure as hell, when our children or their children or their children’s children look back on us – on you and me – and say to themselves, ‘My God, what kind of monsters were these people?’”

Is that how we want to be remembered?