The world’s oil reserves have been exaggerated by about 33%, according to Sir David King, the UK Government’s former chief scientist, who warns of shortages and price spikes within years. 2014 is the likely year he says when demand exceeds new supply.
Peak Oil back in the news
The world’s oil reserves have been exaggerated by about 33%, according to Sir David King, the UK Government’s former chief scientist, who warns of shortages and price spikes within years. 2014 is the likely year he says when demand exceeds new supply. King and a research team from Oxford University say it is an open secret that OPEC is likely to have inflated its reserves, but that the International Energy Agency (IEA), BP, the Energy Information Administration and World Oil do not take this into account in their statistics. Their new research argues that estimates of conventional reserves should be downgraded from 1,150bn to 1,350bn barrels to between 850bn and 900bn barrels and claims that demand may outstrip supply as early as 2014. The paper also raises concerns that public statistics have started to incorporate non-conventional reserves such as the Canadian tar sands, where oil and gas are much more difficult to extract and may never be economically attractive to develop.The “Peak Oil” concept — that the world’s petroleum-production rate will soon reach its maximum and commence an inevitable decline, with negative economic consequences — has been around in scientifically articulated form at least since 1998; long enough to see it confirmed in significant ways.The rate of discovery of new oilfields has been falling since 1964. The biggest find in recent years is Tupi, in Brazilian waters, which is claimed to hold five-to-eight billion barrels of oil; but that’s only enough to slake the world’s thirst for 60 to 90 days. Most producing nations are past their domestic peaks and are experiencing slowing output, despite every effort to maintain flow rates.Sir David said that although the IEA was doing a good job of warning that more investment in oil and gas exploration is needed, governments need to pay more attention to independent research.”The IEA functions through fees that are paid into it by member companies and has to keep its clients happy,” he said. ” This is objective analysis. We’re not sitting on any oil fields. It’s critically important that reserves have been overstated, and if you take this into account, we’re talking supply not meeting demand in 2014-2015.”Sir David said he was “very concerned” that Western governments were not taking the concept of “peak oil” – where demand outstrips production – seriously enough, while China is throwing all its efforts into grabbing as many energy resources as possible.Sir Richard Branson , founder of the Virgin Group, and Ian Marchant, chief executive of Scottish & Southern Energy, are members of the Peak Oil Industry Taskforce, which is trying to raise awareness of potential shortages in the coming decade.Dr Oliver Inderwildi, who co-wrote the paper with Sir David and Nick Owen for Oxford University’s Smith School, believes radical measures such as switching freight transport to airships could become common in future.”The belief that alternative fuels such as biofuels could mitigate oil supply shortages and eventually replace fossil fuels is a pie in the sky. Instead of relying on those silver bullet solutions, we have to make better use of the remaining resources by improving efficiency.”The issue of peak oil arose last November when whistleblowers inside the International Energy Agency alleged the problem had been deliberately downplayed over a long period. BP and other oil companies insist that there is little danger of the world running out of oil because new areas such as Brazil, and more recently Uganda, are always opening up to development. BP chief executive Tony Hayward believes demand will fall as prices move up.
But booming demand in China, India and the Middle East has pushed up the price of crude to more than $80 a barrel .
Amrita Sen, an oil analyst at Barclays Capital, believes the price of crude could pass $100 this year and reach nearly $140 by 2015. Francisco Blanch, of Bank of AmericaMerrill Lynch, has speculated it could hit $150 within four years.
Leggett says all these scenarios could be much too optimistic. He is convinced that Britain must prepare as quickly as possible for a situation when oil becomes so expensive that international trade is hampered and globalisation breaks down.
Peak oil used to be the preoccupation of a small minority, but Ian Marchant, Scottish and Southern Energy’s chief executive, is one who now believes global demand for oil is on the brink of outstripping the ability to produce it. At the launch of the Oil Crunch report, he said: “The west has been far too profligate in its use of oil and the price is going to say: stop it now and start using your oil as a scarce commodity.” .The “Peak Oil” concept — that the world’s petroleum-production rate will soon reach its maximum and commence an inevitable decline, with negative economic consequences — has been around in scientifically articulated form at least since 1998; long enough to see it confirmed in significant ways.
The rate of discovery of new oilfields has been falling since 1964. The biggest find in recent years is Tupi, in Brazilian waters, which is claimed to hold five-to-eight billion barrels of oil; but that’s only enough to slake the world’s thirst for 60 to 90 days. Most producing nations are past their domestic peaks and are experiencing slowing output, despite every effort to maintain flow rates.
Skeptics point out that total world oil reserves continue to grow. But this may not be a reliable indication of where we stand: Often, in nations that have seen a peak and subsequent decline in production, domestic reserves continued to rise right up to, or even past, the date of peak production. Why? Oil companies replace reserves of high-quality, cheaply-produced oil with reserves of low-quality, slow-, or expensive-to-produce oil or tar sands.
Rates of output decline in older, giant oilfields have proven to be more trustworthy indicators of long-term trends. (For instance, they’ve enabled successful peaking forecasts for the United States, the North Sea and other regions). For the world, the average decline rate from existing fields has been calculated by the International Energy Agency at 4.5% per year. The world needs to develop the equivalent of a Saudi Arabia’s worth of oil production capacity every four years to offset such declines. This is quite a burden for the industry, which must now look for oil in ultra-deep water, in polar regions, or in politically fractured nations, since all the easy-to-find, easy-to-extract oil already has been located and much of it pumped.
So far, the record year for world crude production was 2005, and the record month was July 2008. Tellingly, the leveling-off of extraction rates between 2005 and 2008 occurred in the context of rising oil prices; indeed, in July 2008, the price spiked 50% higher than the previous inflation-adjusted record, set in the 1970s. Yet as both oil demand and prices rose, production barely budged in response.
While many commentators believe the jury is still out on Peak Oil, the list of petroleum analysts who say world oil production has already peaked, or will do so in the next five years, lengthens almost daily, and includes CEOs and other well-placed leaders within the oil industry.
The argument that oil production could theoretically continue to grow past 2015 is mainly put forward by organizations such as Cambridge Energy Research Associates and Saudi Aramco, which explain away evidence of dwindling discoveries, depleting oilfields and stagnating total production by claiming that it is demand for oil that has peaked, not supply — a claim that hinges on the observation that oil prices are high enough to discourage potential buyers. But high prices for a commodity usually signify scarcity, so the “peak demand” argument doesn’t hold water.
Peak Oil has significant implications for our economy. In response to the 2008 price spike, the global airline industry nose-dived and auto companies suffered. Worldwide shipping slowed drastically and hasn’t recovered. Demand for oil plummeted in late 2008, and so did the price — temporarily. But today’s price is again high, almost to the point of nipping economic recovery.
What should we do about Peak Oil? Start with what the U.K. Industry Task Force on Peak Oil (which included Sir Richard Branson of Virgin Airlines) has done: Acknowledge the reality of supply limits. Then study the vulnerabilities of Canada’s transport and food systems to high and volatile oil prices, and start making those systems more resilient and less oil-dependent.
But do it fast. Adaptation will take decades, and we are starting very late.
– Richard Heinberg is a senior fellow at the Post Carbon Institute and the author of five books on fossil fuel depletion.
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