ODAC Newsletter – Nov 27

Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.

As the UK political parties begin their preparation for next year’s general election, this week’s ODAC newsletter takes a break from the usual format to pose 3 questions to the next Energy Minister.

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Question 1. If in office and formulating policy for the next five years, would you rely upon the International Energy Agency to provide your basic global oil supply information, as your predecessors have done?

The IEA has regularly provided forecasts out to 2030 which show that reserves and supply are not going to be a problem [1]. However, last year the IEA described the required investment as “daunting”, and this year has emphasized the need for biofuels to reduce the world’s dependence upon oil. This is code for an increasing uncertainty in their own forecasting. These internal doubts were highlighted on 9^th November this year by a “whistleblower” from the IEA, who has claimed that the US has encouraged the IEA to overplay the chances of finding new reserves. [2] This should not surprise you, because even the US military recognised the inevitability of an imminent peak in oil supply, back in 2005 [3], as did ex-Vice President Dick Cheney. It is terribly clear that acknowledging the peak can only add to the woes of the US in both economic and military terms.

You must understand that peak oil is driven by the rate of supply, not the level of reserves, so the oft-quoted “40 years of reserves at current rates” is entirely misleading. The output from most fields starts to decline when between a quarter and a third of its oil has been produced. The best estimates are that the peak of conventional oil production will occur when between one third and one half of the recoverable oil has been pumped out. The remaining reserves can certainly be produced, but only at ever-declining rates – that’s decided for us by physics and economics.

The unreal assumptions that underpin the IEA’s sunny forecast were recently exposed by the Swedish Uppsala group [4]. Bluntly, to fulfil the IEA forecast, the rate at which oil would have to be extracted in future from new fields is twice what the industry has achieved before. We know of no supporting evidence that this is possible.

Question 2. What weight do you place upon other recent reports, for example the 2009 government-funded report by the UK Energy Research Centre, “Global Oil Depletion” [5], or “The Oil Crunch” by the industry group ITPOES in 2008 [6]?

The UKERC report described forecasts of sufficient oil supply to 2030 as at best optimistic, and at worst implausible, after an academic team reviewed all available evidence. Global supply from fields now in production is falling by 4%, or 3 million barrels/day, every year. The equivalent of four new Saudi Arabias would need to be discovered and put into production by 2030 merely to maintain current supply levels, and a further two to meet expected increased demand. UKERC found no evidence that this is likely. This report also summarises current opinion on just how fast alternative liquid supply can grow over the next decades. These cannot possibly fill the expected gap between conventional oil supply and demand.

The ITPOES study reviewed written opinions from a consultant and from Royal Dutch Shell, and concluded that oil capacity will plateau between 2011 and 2015.

Question 3. How will the electorate react when oil supply does peak?

It is unclear to analysts how the current recession will affect peak oil. Although demand has been suppressed, which might spin out sufficient supply rates a little longer, new supply projects have been put on hold. These projects slated to come on-stream in 2012-2015 were intended to make up for the huge decline from current fields. If the recession has finished by then, expect prices to shoot up and supply to fail.

ODAC believes the likely outcome is the “bumpy plateau”. As we emerge from recession, the oil price will rise to reflect inadequate supply, and push the economy back into a fresh decline, and this cycle will keep repeating. A permanent economic stagnation would then ensue. The public will not understand why nothing was done.

“Never waste a good crisis”. The economic crisis has created a perfect environment for starting to deal with the coming oil crisis. The opportunities to reduce consumption through efficiencies, introduce alternative fuel strategies, and build a world-beating new energy industry, are still available. A failure to do so may be seen by 2015 as an extraordinary dereliction of duty.

To conclude, we are not running out of oil. We are merely running out of cheap oil and the capacity to produce it at the demanded rate. Oil will always be available, but at a price that we can no longer afford. And we believe this will happen in the next term of government.

[1] World Energy Outlook 2008, World Energy Outlook 2009

[2] http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency