While the world’s attention is focused on the aftermath of the Israel-Hizbollah war, more far-reaching and dangerous threats to global security are growing dramatically. In July, Samuel Bodman, US energy secretary, said that for the foreseeable future “we’re going to see oil demand exceeding supply”.
The month before, Bill Clinton, former US president, raised the alarm that the world could be out of “recoverable oil” in 35-50 years, elevating the risk of “resource-based wars of all kinds”. Last November, Joe Lieberman, former vice-presidential candidate, warned efforts by the US and China to use imports to meet growing demand may escalate competition to something “as hot and dangerous” as the nuclear arms race between the US and the Soviet Union. Yet all this passes almost without mention in Britain.
The world is consuming about 84m barrels a day, but because of increasing demand from accelerating economic growth in China, India and other countries, the US Energy Information Administration recently forecast demand at 121m barrels a day by 2025. Yet a near-50 per cent increase in demand cannot be met in 20 years. As the head of exploration at Total recently said: “Numbers like 120m barrels per day will never be reached, never.”
First, the oil is not there. For the past decade the world has used some 24bn barrels a year, but has found on average fewer than 10bn barrels of new oil annually. Second, even if it were available, the cost implications are prohibitive. The World Energy Outlook 2005 estimated investment of $17,000bn would be needed to bring the oil to consumers: half again more than US gross domestic product. Third, the infrastructure does not exist to deliver it without unmanageable price spikes. Global spare production and refining capacity is virtually gone.
In the next 20 years, the west’s dependence on the key Gulf producers – Iran, Iraq, Saudi Arabia, Kuwait and the United Arab Emirates – will almost double, as their share of world oil production rises from one-quarter to almost half. With Russia and Venezuela, they are expected to be responsible for more than 60 per cent of world oil production by 2025. Already, production by non-Organisation of the Petroleum Exporting Countries is nearing its peak and subsequent decline. When, by 2010, it cannot meet incremental demand, Opec will become less able to accommodate short-term fluctuations. Volatile price hikes will be inevitable and demand growth will have to be curtailed.
There are only three ways out of this looming crisis.
One is “demand destruction”, which falling supply will to some extent enforce, but almost certainly too little, too late. A second route is to diversify out of fossil fuels and into renewable sources of energy and energy conservation. There are no signs that this is being pursued worldwide on the scale necessary. The third route, which is both short-sighted and counterproductive but the one being pursued at present, is to grab the lion’s share of ever-dwindling oil repositories.
General John Abizaid, commander of the US Central Command, told the House Appropriations Committee in March that American forces may need to stay in Iraq indefinitely because of the oil. In opposition, over the past year China, India, Russia and Iran have signed energy deals valued at some $500bn with one another and have begun creating a central Asian “energy club” that would have its own pipeline network and energy market. The Shanghai Co-operation Organisation not only includes China and Russia, but is about to invite Iran, India and Pakistan to be full members. The economic end-game is clearly to dilute US efforts to dominate the Caspian Sea’s energy reserves. The SCO is on track to become an organisation that challenges the geopolitical reach of the US.
The situation over gas is even more threatening. Deepening ties between Russia and Algeria are causing concern that the recent talks between Russia’s Gazprom and Sonatrach, the Algerian state energy company, could be the first step in the formation of a natural gas cartel. The dwindling number of supplier nations could encourage the formation of an Opec of gas. An alliance between the top three or four gas exporters – which would be much more effective than the oil Opec- is a nightmare for global markets.
This is a turning point in history. Never before has a resource as fundamental as oil faced rapid decline without a substitute in sight. The self-destructive strategy of cornering diminishing oil and gas supplies must urgently be switched to building a new world energy order based on a renewables and hydrogen economy, alongside energy conservation. If it is not, we risk a second Great Depression, rising military tensions and the prospect of big wars.
The writer is UK Labour MP for Oldham West and Royton and a former environment minister.