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Responding to the challenge of Peak Oil

Economic CrisisEnvironment

Photo by Mila Jacob Stetser/Flickr

Over the past two years the price of oil has climbed relentlessly. This is true not just of the volatile spot price, but also of the five-year futures price, which for many years held reliably close to the US $20 mark. At this time of writing, both the spot and futures prices are near $70. North Americans know that this translates to high gasoline prices, and, since they can scarcely live without their cars, many are worried and angry.

During these same two years, a small segment of the public has become aware of a phrase – “Peak Oil” – that both explains the recent price hikes and puts them in a broad historic context.

Those who “get” Peak Oil typically experience a profound paradigm shift – a reorientation of their thinking about the world. At the core of this shift is the recognition that humankind is entering a period of change unlike any in history. No one is saying that the world is about to run out of its most important strategic resource. However, the rate at which oil can be extracted is subject to geological limits. At some point those limits will begin to constrain our ability to produce oil at the ever-expanding rates that growing economies demand. What this means is that the amount of oil available daily to market will begin to decline, and the shortfalls will be relentless and cumulative.

There is of course some disagreement about when that point will be reached. Nevertheless, it is quite likely that the time interval before the global peak occurs will be much briefer than the period required for societies to adapt themselves painlessly to a different energy regime.

Not just a theory

What evidence is there that Peak Oil is real? A good part of the evidence comes from the fates of the world’s older oil fields. During the past century and a half, all the older oil fields have been observed to peak in output and then decline. The same has been noted with entire oil-producing nations. So, it is axiomatic that at some point oil production for the world as a whole will also reach a maximum and then start to wane.

For large regions, like nations, the rate of oil discovery typically peaks decades before the peak in actual oil production. This was the case, for example, in the US, which was the first important producing country to begin to decline. During the early twentieth century, the United States was the world’s foremost producer and exporter of oil. Discoveries were dramatic and abundant, but after 1930 began to fall off sharply. In 1970, the rate of US oil extraction reached its all-time maximum. And, although later discoveries in Alaska and the Gulf of Mexico have offset this trend somewhat, the US rate has been in general decline since then. The result is that today the United States imports almost two-thirds of the oil it uses.

Today, according to Chevron, altogether 33 out of 48 significant oil-producing nations worldwide are experiencing declining production. In some cases, that decline may be temporarily reversible; however, in most instances it will continue inexorably.

Considering the importance of global Peak Oil, uncertainty regarding its timing is disturbing. If the peak were to occur within the next five years, it would be impossible for national economies to adjust quickly enough, while a peak 30 years from now would present a greater opportunity for preparation and adaptation.

Evidence for a near-term peak includes the fact that global rates of oil discovery have been falling since the early 1960s – a fact that has been confirmed by Exxon. Currently, only about one barrel of oil is being discovered for every five extracted.

According to official data, current world petroleum-reserves numbers look reassuring: the world has roughly a trillion barrels yet to produce. However, circumstantial evidence suggests that some of the largest producing nations may have inflated their reserves figures for political reasons. For example, a January 23 article in Petroleum Intelligence Weekly discussed evidence that Kuwait’s official reserves figures are double the amount that can actually be produced.

Uncertainties in the data invite disagreement among experts. While the US Department of Energy predicts that world oil production will increase over the next 20 years from 84 million barrels per day (Mb/d) to 120 Mb/d in order to meet anticipated demand, a growing chorus of petroleum geologists and other energy analysts warns that such levels of production may never be seen and that the global peak could occur within months or years.

Among those cautionary voices is that of James Schlesinger, who served as CIA director in the Nixon Administration, defense secretary in the Nixon and Ford administrations and energy secretary in the Carter Administration. In November, 2005 testimony he offered before the Senate Foreign Relations Committee, Schlesinger urged lawmakers to begin preparing for declining oil supplies and increasing prices in the coming decades. “We are faced with the possibility of a major economic shock and the political unrest that would ensue,” he said.

Ford Motor Company executive vice president Mark Fields, in his keynote address to the Society of Automotive Engineers’ 2005 “Global Leadership Conference at the Greenbrier,” noted that one of the most serious challenges to his industry is that “oil production is peaking.”

Veteran petroleum geologist Henry Groppe, a Houston-based independent analyst who began his career in 1945 and who is today a consultant to global corporations as well as to nations, said in 2005 that “Total crude oil production may have peaked this year, or perhaps will peak next year.”

Matthew Simmons, founder of Simmons & Company International energy investment bank, has been perhaps the most outspoken of analysts regarding Peak Oil. He is the author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Wiley, 2005). Simmons has concluded, on the basis of his study of scores of technical papers from the Society of Petroleum Engineers, that Saudi Arabian oil production could be close to its maximum, and that world oil production is also therefore close to its peak.

The danger of assuming an easy fix

These questions were addressed in an important study entitled The Peaking of World Oil Production: Impacts, Mitigation and Risk Management, prepared by Science Applications International (SAIC) for the US Department of Energy under the leadership of Robert L. Hirsch in February, 2005. The first paragraph of the report’s executive summary states:

“The peaking of world oil production presents the US and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”

As the Hirsch Report explains, due to dependence on oil for transportation, agriculture and the production of plastics and chemicals, every sector of society will be impacted. Since World War II, significant oil-price increases have almost always led to economic recessions; Peak Oil could therefore trigger the mother of all downturns – one that would be systemic and long-lasting. This lingering period of negative growth, widespread unemployment and skyrocketing real prices for just about everything would be the context within which nations would have to undertake heroic efforts to develop alternative sources of energy, reduce demand for oil through heightened energy efficiency and redesign entire systems (including cities) to operate with less petroleum.

The report effectively undermines the standard free-market argument that oil depletion poses no serious problem, now or later, because as oil becomes scarcer the price will rise until demand is reduced commensurate with supply, with higher prices stimulating more exploration, the development of alternative fuels and more efficient use of remaining quantities. While it is true that rising prices will indeed do all of these things, we have no assurance that the effects will be sufficient, or will appear soon enough, to avert severe and protracted economic, social and political disruptions.

The upshot of the Hirsch Report is that if global Peak Oil is twenty years away or fewer, or we believe it might be, then we must begin immediately with a full-scale effort to address the problem.

The oil depletion protocol

Peak Oil mitigation efforts would be challenging enough in the context of a stable economic environment. But oil prices that repeatedly skyrocket and then plummet could devastate entire economies and discourage long-term planning and investment. Those nations, and those aspects of national economies, that could not obtain oil at any price they could afford would suffer the worst impacts. Supply interruptions would likely occur with greater frequency and for increasing lengths of time as global oil production gradually waned. Meanwhile the perception among importers that exporting nations were profiteering would foment animosities and an escalating likelihood of international conflict.

In short, the global peak in oil production is likely to lead to economic chaos and extreme geopolitical tensions, raising the spectres of war, terrorism and even famine, unless nations adopt some method of cooperatively reducing their reliance upon oil.

One proposed method – perhaps the simplest imaginable – is the Oil Depletion Protocol, proposed by the Association for the Study of Peak Oil and the Post Carbon Institute. According to its terms, signatory nations would reduce their oil production and oil imports according to a consistent, sensible formula that amounts to a bit less than three per cent per year. This would have four principal effects:

First, it would reduce price volatility and enable nations, municipalities and industries to plan their economic futures.

Second, it would reduce geopolitical competition for remaining oil supplies.

Third, it would conserve the resource. Petroleum engineers are keenly aware that oil fields that are depleted too quickly can be damaged, resulting in a reduction in the total amount eventually recoverable. Voluntarily reducing the rate at which the world’s oil fields are depleted would extend their lifetimes.

And finally, carbon emissions would be reduced substantially – especially if the Oil Depletion Protocol were adopted in tandem with a strengthened version of the Kyoto Protocol. Oil consumption globally would decline over 25 per cent in ten years, and this would translate into a sharp drop in greenhouse-gas emissions.

The Oil Depletion Protocol would not by itself solve all of the problems raised by Peak Oil. But it should make those problems much easier to address, providing a context of global cooperation in which the task of energy transition could be planned and supported over the long term.

But could nations be persuaded voluntarily to reduce their consumption of a substance that has conferred so many economic advantages? Probably the strongest argument in this regard is the simple fact that oil is going to become scarce and expensive in any case: the Protocol simply enables nations to deal with the inevitable energy transition proactively.

One nation is already thinking along these lines. In December, 2005, Swedish prime minister Göran Persson acknowledged that the global oil peak is a problem that needs to be addressed now, and announced the appointment of a National Commission on Oil Independence with the objective of making Sweden oil-independent by 2020. The Commission will study mitigation measures and issue a report this summer.

Municipal peak oil planning

Some towns and cities around the world are unwilling to wait for their national governments to address the problem of Peak Oil, and are looking for ways to prepare locally. Some examples:

Kinsale, Ireland was the first town to undertake a comprehensive Peak Oil assessment and response scenario, entitled “The Kinsale Energy Descent Action Plan,” a project initiated by Rob Hopkins and his “Practical Sustainability” class at Further Education College. The resulting report, with a year-to-year plan of action, has since been adopted as policy by the Kinsale town council.

This past January, the Transportation Committee of the City of Burnaby, British Columbia released a report that lucidly summarized the challenge of Peak Oil and offered recommendations.

Sebastopol, California recently appointed a commission to study the problem of Peak Oil and make recommendations. I’m proud to say that many of my students at New College of California are involved in the “Powerdown Project,” which offers assistance to Sebastopol and other regional towns in their efforts along these lines.

Other municipal, citizen-led efforts now underway include projects in Tompkins County, New York; the San Francisco Bay Area; Boulder, Colorado; Plymouth, New Hampshire; Bloomington, Indiana; and Eugene, Oregon – among many others.

A century from now, humankind will no longer be using petroleum in any meaningful quantities. That much is assured. How we make the transition is up to us.

What needs to be done?

If there is any solution to industrial societies’ approaching energy crisis, renewables plus conservation will provide it. Yet decades will be needed to achieve a smooth transition – and we do not have decades. Moreover, even in a best-case scenario, there will have to be a massive shifting of investment from other sectors of the economy towards energy research and conservation. And the available alternatives will probably be incapable of supporting the kinds of transportation, food and housing infrastructure we now have. There will have to be a complete redesign of industrial societies.

True, there is much that individuals, businesses and communities can do to prepare for the coming energy crunch. Anything that supports making economic processes more energy-efficient and individuals more self-reliant (gardening, energy conservation and voluntary simplicity – for example) will help. But the strategy of individualist survivalism offers only temporary refuge. True security will come only with community solidarity and interdependence. In order to alter the consumption patterns of millions of citizens, for example, public education will be required. An effective public education exists in the form of the advertising and entertainment industries, but it is spreading a message exactly the opposite of what is required. We are being told daily to buy, consume and waste; but what we need to be doing is to reduce private consumption, reuse and repair. Since corporations will not willingly change their message, nor happily redesign products to increase their durability and reparability, forcible government intervention is essential.

Industrialized societies will have to forgo further conventional economic growth in favour of a costly transition to alternative energy sources. All nations will have to limit per-capita resource use. Fresh water, topsoil and other basic and limited resources will need to be conserved. Moreover, as energy available for industrial transportation declines, economies will have to be unlinked from the global market and re-localized. Everyone, especially people in rich industrial nations, will have to undertake a change in lifestyle and adopt more modest and more slowly achieved material goals. And inevitably, with the conservation of resources will come the necessity to stabilize and reduce human populations.

The challenging reality is that making society sustainable will require a large-scale reform of governments and economic systems, and the use of mechanisms of authority to apply penalties and offer incentives.

Richard Heinberg is a senior fellow at the Post Carbon Institute and the author of Power: Limits and Prospects for Human Survival.

This article was produced by the Independent Media Institute.

This article appeared in the July/August 2006 issue of Canadian Dimension (Oil Sucks!).


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