Peak oil more dangerous than terrorism?
By Stefan Nicola
Oil production will peak in the period between 2011 and 2013, causing rising fuel prices and devastating damage to the global economy, a new report found.
The oil age is coming to an end, and sooner than most people may think. The shift to a new energy age won't be easy, and the world's economies will have to act sooner rather than later to prevent the global economy from being severe damaged -- that is the warning from a new report issued by the U.K. Industry Taskforce on Peak Oil and Energy Security, an alliance of eight British companies drawn from across the economic spectrum.
The report, titled "The Oil Crunch: Securing the UK's Energy Future," highlights the problems the global economy will face after oil has peaked and examines energy alternatives to best sustain the post-oil period. It claims peak oil is a much greater threat to Britain than terrorism and foresees oil prices much higher than this summer's $147-a-barrel peak. The report is the first multi-company alarm bell to be sounded on peak oil, an issue that has divided the energy world for decades.
OPEC governments and some oil companies argue that because of existing reserves, new findings and technological advancements, crude oil production will meet growing demand for decades to come. Others, and they have become more numerous and vocal, argue that an oil peak -- after which production will steadily and inevitably fall -- is imminent. This now includes even big oil officials.
"I think that easy oil and easy gas -- that is, fuels that are relatively cheap to produce and very easy to get to the market -- will peak somewhere in the coming 10 years," Jeroen van der Veer, chief executive officer of Shell, said in June 2008.
The report sought two expert opinions on oil supply, the first from Chris Skrebowski of Peak Oil Consulting, an industry expert known as a leading advocate of the early peak scenario, and the second from oil and gas giant Royal Dutch Shell.
Skrebowski predicts that global oil production will peak in the period between 2011 and 2013 and then decline steadily, with harder-to-extract reserves failing to fill the gap in time to avoid a supply crunch. "After 2010, meeting any incremental oil demand will be very difficult as the incremental supply is insufficient," Skrebowski writes in his analysis. "After 2010, prices are likely to rise strongly to reconcile available supply and demand." He also warns that the entire system may crumble much sooner if a number of huge, long-established oil fields go into terminal decline simultaneously.
Shell, in turn, foresees oil production to rise during the next years and then flatten by 2015; with the help of unconventional sources like tar sands, production will remain on a plateau until the 2020s, Shell predicts.
"We find it of great concern that both our risk opinion-providers agree that the age of 'easy oil' is over. If so, fast-growing alternative energy supplies become imperative, even if production flattens in 2015 as Shell suggests," the task force said, adding that, based on its own research and analysis, it was finding Skrebowski's steady decline theory "highly probable" and the collapse option "possible."
This is not because the world is running out of oil. But it's running out of cheap oil -- crude that is easily extracted and refined.
"Only the hard-to-find (oil) remains and all too often is found in the most challenging environments and the least attractive countries. While the 'easy oil' can readily be turned into large production flows to meet demand, the difficult, unconventional oils can only be mobilized slowly and expensively," the report found.
And the hard-to-find oil won't be there in time and in enough quantity to offset falling production of cheap oil and growing consumption in the developing countries.
The countries that still have reserves of cheap oil may then alter their behavior, according to Lord Ron Oxburgh, a former Shell chairman.
Countries like Saudi Arabia or Russia are "starting to regard their shrinking oil and gas resources as something to be husbanded," Oxburgh wrote in the report's foreword. "King Abdullah of Saudi Arabia recently described his response to new finds: 'No, leave it in the ground ... our children need it.' In other words, even those who have less expensive oil may wish to exploit it slowly and get the best possible price for it."
The report therefore advises the British government to take peak oil more seriously, also because its economic impact will hit Britain (and the rest of the world) as early as the next three to five years -- so earlier than climate change.
The task force, which includes the firms Arup, First, Foster & Partners, Scottish and Southern Energy (OTCPK:SOCI), Solarcentury, Stagecoach, Virgin and Yahoo!, has a series of concrete proposals to soften the crash after oil has peaked. The group wants
-- governments and companies to be more transparent about oil reserves;
-- governments to combine efforts to deal with oil depletion and climate change in the post-Kyoto climate negotiations;
-- governments to draw up their own national response plans to peak oil;
-- governments to push energy savings and renewable energy sources.
The world's governments need to act as quickly as possible, the report says.
"If we wait until an energy supply crisis is upon us before becoming serious about implementing sustainable solutions, in the ensuing dislocation we could no longer be able to muster the resources required."