A warning from one who would know

Like all oil wells, even this one (the first in the US) still produces some oil -- just not very fast. THAT is what peak oil is -- a mismatch between the flowrates demanded and the flowrates the earth will yield. Image by Stuck in Customs via Flickr

Fact. No. 3: Supply. We are not running out of oil. The issue is not our endowment of oil resources, it is the world’s production capacity. Additions from exploration last replaced annual production in 1987. The easiest oil has been discovered. Costs are increasing for new barrels, where wells can be drilled in water depths of over one mile to targets up to six miles deep, and discoveries can take over a decade to develop.

Oil field declines are running at more than 5 percent per year. That means we have to add at least 4 million barrels per day each year just to keep production flat. Yet non-OPEC production is in the process of, if not peaking, reaching a plateau. The U.K. Energy Research Centre just published a report that there is a significant risk that worldwide production of conventional oil could peak before 2020 and enter terminal decline. If we do not act now, we will have a devastating oil crisis in the next 5-to-10 years.

We will need the courage to act to prevent this crisis and make the commitment to change our behavior – not just in demand; not just in supply; but both.

The United States must take a leadership role. With five percent of the world’s population but 25 percent of its oil consumption, the United States can no longer blame oil producers for rising prices. We need to have the courage to demand 50 miles per gallon as the national standard for all vehicles; gasoline hybrids and diesel could get us there. A gasoline tax of $1 gallon would boost conservation and help pay down the federal deficit by $120 billion per year.

This outstanding summary -- one of the best ever in the mainstream media -- further warns that living without cheap oil is less science-fictional all the time:

It is 30 years since the film Mad Max was made, launching the career of Mel Gibson.

The film made a big splash at the time for its terrifying view of a world without oil, where gangs of grisly looking people roam deserts in a post-apocalyptic world, killing each other to get their hands on the few drops of petrol that some have managed to produce in makeshift refineries. Social order has completely broken down.

Great film if you like that sort of thing but complete fiction, of course. Or is it? Three decades later, and I wonder if the film was, in fact, years ahead of its time.

Just think back to summer last year when oil prices spiked to $150 a barrel – 10 times the level of a decade earlier. In petrol stations in some European countries, people started to drive off without paying and drivers had to be banned from filling cars before they had paid up. In Britain, people stole heating oil out of the tanks that sit outside many houses in the country.

Imagine what would happen if prices rose, say, to $300 a barrel. Or higher. Not only would it become too expensive to drive unless absolutely necessary, but food would become prohibitively expensive to transport, goods from China would be too expensive to ship, and plastics, which come from oil, would be unaffordable. The cold turkey after more than a century of cheap oil would be painful indeed. For developing countries it would be fatal – many could not afford energy at those prices.

Oil has fallen sharply in price since last summer, but this is only because the world tumbled into its worst recession in decades, clobbering industrial output and trade volumes, and therefore oil demand. What is curious, though, is that oil prices, having tumbled below $40 earlier this year, went back above $81 a barrel last week, their highest for a year.

There are plenty of possible reasons, such as the continuing fall in the value of the dollar, in which oil is priced, or the piling in of speculators who think a recovery will push up oil prices. Or you could reach for the old chestnut of supply and demand. Demand has fallen a lot, sure, but maybe supply is not what it used to be. Indeed, take a graph of the oil price over the past couple of decades, chop off last year's spike to $150 and this year's plunge to $35 and you can see that oil prices have been on a steady upwards trend for a decade. The question is why?

An excellent new report, Heads in the Sand, released last week by the non-governmental organisation Global Witness – the group that first brought "blood diamonds" to the world's attention – looked in depth at what is happening to the supply of oil. And it is frightening.

The author, Simon Taylor, has spent two years working on this issue, in particular, analysing the forecasts issued late last year by the Paris-based International Energy Agency (IEA), in which it admitted for the first time that world oil supplies were about to start to dwindle just as demand from countries such as India and China is accelerating rapidly. The IEA had previously asserted that oil production would not peak before 2030 at the earliest. Now it thinks we might be very close to that point.

The IEA figures showed there could be a gap of 7m barrels a day between supply and demand by 2015. That represents about 8% of the expected world demand by then, 91m barrels a day. The gap will grow as demand keeps growing. Taylor warns that world supply levelled off between 2005 and 2008, so quite where the new oil is going to come from is unclear.

Taylor takes issue with the IEA's recommendation that the world spend $450bn (yes, billion) a year looking for new oilfields that may or may not be there and so render its forecasts overoptimistic. He thinks governments should admit they have ignored the problem and don't have a plan B. . . .