$100 oil: the terrible truth
Nearing the price barrier is a pointer to the peak of output, and the crisis the powerful want to ignore
By David Strahan
As the price of crude oil sets records almost daily, the British government remains stunningly complacent. With the $100 barrel a real and constant threat, the prime minister's website blithely proclaims "the world's oil and gas resources are sufficient to sustain economic growth for the foreseeable future". Officials refuse to define what is meant by "foreseeable", but it is clear they suffer from extreme myopia, or worse.
All the evidence suggests we are rapidly approaching "peak oil", the point when global production goes into terminal decline for geological reasons. The industry consensus is that world output, excluding that from the Opec producers, will peak in about 2010. It is also widely agreed that Opec has grossly exaggerated the size of its reserves, meaning that global output must also peak soon. Since oil provides 95% of all transport energy, as well as vital inputs to modern agriculture, this is likely to provoke a crisis.
Oil executives have traditionally avoided talk of geological constraints - no doubt mindful of the value of their share options - but now even they admit the industry is in difficulty. A growing number believe output will never exceed 100m barrels per day, compared with 86m today. At present rates of growth, demand will hit that ceiling within about a decade.
The UK position relies on the International Energy Agency, which forecasts oil production rising to 116m barrels per day in 2030. But the model that produces this forecast relies in turn on an estimate of the total oil available published by the US Geological Survey, which is demonstrably wildly overoptimistic.
For the US survey numbers to come true, the world would have to discover 22bn barrels of oil a year between 1995 and 2025. So far we have discovered just 9bn per year, only 40% of the predicted amount. Since oil discovery has been falling steadily since 1965, this deficit is only likely to widen. Even if we assume annual discoveries stick at the current level for the next 20 years, the survey resource estimate is still 500bn barrels too high: the survey numbers imply an oil production peak in 2017-21.
The US survey estimate has long been criticised as inflated, but now even the optimistic IEA is having doubts. The agency is to reappraise its reliance on the survey figures for its long-term production forecast next year. It is difficult to see how it can do this without a huge downward revision of its forecast. Britain's official position is therefore built not only on sand, but the sand of an hourglass that is fast running out.
In fact, peak oil may have arrived already. Production of crude is lower now than in February 2005, while total liquid fuel production, including marginal sources such as biofuels, is lower than in July 2006. Even if it's not peak oil as such, production is struggling. Meanwhile demand continues to surge; the soaring price sends a clear message.
Tony Blair wrote in last year's energy review that it was a principal duty of government to secure energy supply. He was right. Gordon Brown must now abandon the reliance on IEA forecasts, institute a truly independent assessment of global oil depletion and launch a massive programme of mitigation. Anything less would be dereliction.
But of course he won't. Even more than climate change, peak oil demands that governments confront voters with uncomfortable truths that will affect living standards. In Whitehall, legs will remain crossed and buttocks clenched as politicians and officials pray to God that it doesn't happen in their term of office, or before they draw their inflation-linked pension.
David Strahan is the author of The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man