An article in the Guardian by environmentalist writer George Monbiot has led to some really interesting debate around whether peak oil will happen, when it might happen, whether it’s happened already or whether the old adage of “the stone age didn’t end because we ran out of stones” might be true or not.
Monbiot begins by saying this:
The facts have changed, now we must change too. For the past 10 years an unlikely coalition of geologists, oil drillers, bankers, military strategists and environmentalists has been warning that peak oil – the decline of global supplies – is just around the corner. We had some strong reasons for doing so: production had slowed, the price had risen sharply, depletion was widespread and appeared to be escalating. The first of the great resource crunches seemed about to strike.
Among environmentalists it was never clear, even to ourselves, whether or not we wanted it to happen. It had the potential both to shock the world into economic transformation, averting future catastrophes, and to generate catastrophes of its own, including a shift into even more damaging technologies, such as biofuels and petrol made from coal. Even so, peak oil was a powerful lever. Governments, businesses and voters who seemed impervious to the moral case for cutting the use of fossil fuels might, we hoped, respond to the economic case.
I have found myself in the same conundrum. Is peak oil a good thing or a bad thing? In the New Zealand context, with a wealth of renewable energy options, I’ve probably found myself falling on the side of peak oil being a good thing – a resource scarcity that means we can make a start weaning ourselves off oil and all the environmental, social and economic damage having extremely cheap oil seems to wreak – particularly in the area of transport.
But Monbiot now suggests that the “peakers” might have got things wrong – with the potential for significantly more oil to be pumped out over the next few decades than we had foreseen. This is based on a report by oil executive Leonardo Maugeri, published by Harvard University. Monbiot picks up on what the report says:
[The report] provides compelling evidence that a new oil boom has begun. The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that.
Maugeri’s analysis of projects in 23 countries suggests that global oil supplies are likely to rise by a net 17m barrels per day (to 110m) by 2020. This, he says, is “the largest potential addition to the world’s oil supply capacity since the 1980s”. The investments required to make this boom happen depend on a long-term price of $70 a barrel – the current cost of Brent crude is $95. Money is now flooding into new oil: a trillion dollars has been spent in the past two years; a record $600bn is lined up for 2012.
And it’s not just in politically difficult areas where the additional oil is coming from. In fact, much of the increase – according to the report – will be from the USA:
But the bigger surprise is that the other great boom is likely to happen in the US. Hubbert’s peak, the famous bell-shaped graph depicting the rise and fall of American oil, is set to become Hubbert’s Rollercoaster.
Investment there will concentrate on unconventional oil, especially shale oil (which, confusingly, is not the same as oil shale). Shale oil is high-quality crude trapped in rocks through which it doesn’t flow naturally.
There are, we now know, monstrous deposits in the United States: one estimate suggests that the Bakken shales in North Dakota contain almost as much oil as Saudi Arabia (though less of it is extractable). And this is one of 20 such formations in the US. Extracting shale oil requires horizontal drilling and fracking: a combination of high prices and technological refinements has made them economically viable. Already production in North Dakota has risen from 100,000 barrels a day in 2005 to 550,000 in January.
The gist of Monbiot’s article is not in the “hooray we’re saved”, but rather from a climate change perspective that we can’t depend on peak oil to save us from climate change – because (according to his article) there’s plenty of oil left to fry us all.
There have, of course, been quite a few responses to the article. Including a further piece in the Guardian by writer Jeremy Leggatt.
Ahead of the credit crunch, commentators echoed the incumbency mantras right across the media. Ahead of the oil crisis, the same is happening. Just Google “peak oil myth” and see what comes up. Yesterday George Monbiot joined this group with an article entitled We were wrong about peak oil. There’s enough to fry us all.
The many misunderstandings he relays begin with the title. There is more than enough potential oil resource below ground to create the climate disaster he refers to. Peak oil is not about that. It is about when global production falls never again to reach past levels: a disaster, if the descent hits an oil-dependent global economy years ahead of expectations. This descent depends on flow rates in oilfields, not the amount of oil left. What worries those who believe the global oil peak is imminent is the evidence that the oil industry will not be able to maintain growing flow rates for much longer.
As is noted above, there is a very important distinction to be made between the amount of oil in the ground and the rate at which that oil can be extracted. The oil industry needs to suck out of the ground a pretty big amount of oil, each and every day, in order to avoid oil prices increasing dramatically and that amount needs to grow as demand increases around the world. Much of the newer “unconventional” oil alluded to in the debates has the potential to create masses of oil, but because it’s so intensive to get the stuff out, you can’t create masses of it at any one time.
Many within the incumbency itself are sounding alarms. Every year, when the Association for the Study of Peak Oil (ASPO) meets, recently retired oilmen queue to give their latest assessments of how their industry is getting its asset assessment wrong. The latest ASPO event was held a few weeks ago in Vienna, which I attended.
There has been “a boom in oil production” of late, Monbiot says. Wrong. Global production has been essentially struggling along a plateau since 2004, as Bob Hirsch, an ex-Exxon advisor to the US Department of Energy describes. Hirsch expects the descent to begin in one to four years.
Monbiot is correct that there has been a small increase in oil production in the United States in recent years. But can that continue, as he infers? Gas-industry whistleblower Art Berman describes how the shale gas gold-rush of recent years, now extending into shale oil, may well be a giant ponzi scheme: decline rates in wells are unexpectedly fast, meaning more and more have to be drilled at ever more expense, meaning ever more money has to be borrowed against cash flows from production that fall ever further behind. He looks at the resulting disaster in the balance sheets of oil and gas companies, and expects the bankruptcies to start any time soon. John Dizard has also warned of this particular bubble, in the Financial Times.
Even if oil production in America could somehow grow all the long way back to self sufficiency, what of the global picture, when conventional oil peaked back in 2006, as the International Energy Agency (IEA) has shown? The six Saudi Arabias of new production that would be needed to lift production to 100m barrels a day by 2030, according to the IEA, are a laughable prospect to the whistleblowers of ASPO, as many presentations in Vienna showed. The IEA clearly does not believe it is feasible. Neither do many still active in the incumbency, not least Total’s head of exploration, who recently warned that peak is just around the corner.
Further critique is available here, which looks at – in more detail – the actual study by Leonardo Maugeri, picking some pretty big holes in it.
Much of the confusion about peak oil seems to relate to a bit of a misguided assumption that it’s all about “when the oil runs out”. Higher prices and a shift into more unconventional methods of extracting oil may well mean that we don’t run out of oil for many hundreds of years to come – which is a pretty good thing considering how quite a lot of pretty useful and valuable stuff is made out of oil, we wouldn’t want to be without it.
The issue is much more around what happens if we can’t supply enough oil to meet demand, with the market response obviously being that prices increase hugely. A much higher price for oil makes little difference to whether I can still have a largely plastic laptop, whether the plastic pens on my desk can continue being made and so forth – this is real high value stuff that utilises oil very efficiently and it’s heartening to know that there will still be some oil for this really high value stuff a long way into the future. What really matters is the low value, inefficient use of oil – which I suspect is particularly in the form of private transportation. We may still have plenty of oil in the future, but if it’s twice the price that has a big impact on what our future transport planning should be looking at.
Interestingly, this process is already happening all around the world, with reduced driving being a big contributor to the fact that developed world countries are using much less oil per capita than we were a few years ago. We just need to wake up to this fact.