Peak oil is meant to describe that future time when supply of oil goes into permanent decline. It’s the date some fear, others dismiss, saying it’s a very long way of indeed. But, both sides of the peak oil debate agree on one thing. The day it arrives will be a bleak day. And now a task force has claimed that peak oil is less than ten years away, could even descend upon during the life time of the current government, and the problem has been compounded by the BP oil spill. Is it time panic?
It seems there are two theories on oil. One theory says that oil goes up and down in price following a regular cycle. One theory looks at what price economists call elasticity of demand, and the idea goes sleek this. In the short run, oil is just something we must have. So, as pries goes up, demand is barely affected- or if you will we have inelastic demand. But the theory continues, in the long-run demand is actually quite elastic. If oil stays high in price we change our habits. We buy more fuel efficient cars, for example, or insulate our lofts
And this is how the theory pans out. Oil goes up in price, the reason does not matter- just take this one as a given. To begin with we all suffer, recession may even be the result. But over time, we learn to adjust, and bit by bit demand starts to fall. But oil companies, being run by people who have no understanding of economic cycles, don’t realise this. They can see prices is high, they their finance directors enjoy something of a high from counting all the profits, and so they engage in an orgy of exploration.
A few years pass. Thanks to the oil exploration splurge, supply of oil is up. Thanks to the way we changed habits and learnt how to be more economical we with our use of oil, demand was lower. And all of a sudden price crashes. By the late 1990s, oil was around $10 a barrel, having fallen dramatically from its price a few years earlier.
At this point we enter the next stage in the cycle. Oil is cheap, and bit by bit we become more careless with the way we consumer oil. Fuel efficient goes out of fashion. We yearn for Ferraris, or other fuel guzzling beats. Meanwhile, oil companies suffer from cheap oil and they slash their exploration budgets.
And so the cycle turns again, and oil shoots up in price like it did during the second half of the noughties.
Those who sign up to this theory tend to laugh off the idea of peak oil. It is not that they don’t believe a permanent decline in the supply of oil would be dangerous, they just don’t see as very likely.
The peak oilers, on the other hand, reckon we are running out. And some then go on to argue that black gold, or oil as some people call it, is the lynch pin of the modern economy. Within a few years of peak oil, we will see an irreversibly descent into a new stone age.
Their critics see this as ridiculous. They point towards the tar sands of Alberta Canada, for example, and say there plenty of oil out there, just begging to be drilled into.
Two other developments make the issue more complex.
First there’s the credit crunch. It seems this may have had two fold effect . As recession descend upon the world. Demand for oil fell, and therefore so did its price, with a barrel of oil falling from around $145 in the summer of 2008, to less than $40 six months or so later. So the credit crunch pushed down on demand. But maybe, the lack of credit also meant less money was available to fund further oil exploration. So in the short-run the effect of the global economic crisis was less demand for oil. But in the longer term the effect may be less supply. So the anti peak oilers, can argue the fall and rise in oil can still be explained by their economic cycle theory
The second development, relates to certain Deepwater Horizon oil rig. The peak oilers see this disaster as evidence of how oil is becoming harder to reach. Most people probably agree by now, that BP has applied quite breathtaking technology in dealing with this disaster, but despite this, the fact remains oil is getting so hard to get at, that disaster such as this are becoming inevitable.
Those who dismiss peak oil, simply argue that the BP oil spillage is a blip. And furthermore more a blip that is being compounded by the US. They argue that our expertise in learning how to tap into oil, lurking in the deep places of this planet is improving. And that if we see a oil drilling ban in the Gulf of Mexico, leading to a fall in supply, then this is not evidence of peak oil, merely evidence to show the US is a fickle beast
It seems that the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) falls into the peak oil camp. Well frankly, judging by its name, you would expect that. It warns of the “increasing importance of deepwater drilling to global oil supply”, whi9ch is says is “expected to constitute 29 per cent of new capacity by 2015, up from only 5 per cent today.” And argues that “the result is that any future delays or problems associated with deepwater drilling will have much greater impact on supply than is the case today.”
The task force has been set up by various businesses, and among other counts as its patron Sir Richard Branson.
In a report out earlier this year it said: “Having assessed the systemic changes caused by the global economic recession, coupled with the projected growth from non-OECD countries, ITPOES predicts Peak Oil will occur within the next decade, potentially by 2015…The study finds that the recession has delayed the oil crunch by two years.”
The task force reckons peak oil will occur at around 95 million barrels per day, against production levels of 85 million barrels per day in 2008. In other words, demand only need to increase by just over 10 per cent, and wham. Oil goes shooting up.
The report’s authors may or may not be right, but there is one respect in which we agree with them
Peak oil does not have to be the disaster some say it will be. The problem with oil is that trillions of dollars have been invested into it. But there are alternatives out there. Critics of wind and solar say they are nowhere near as efficient as means for generating our energy needs as oil, but can we really say that. If wind and solar power had a fraction of the money spent on them that has been thrown as oil, it seems pretty reasonable to argue they would become far more efficient.
In some ways, peak oil may prove to be a good thing. If we turned out attention to other, renewable forms of energy, or maybe heaped resources on genetics research, so that the maverick geneticist Craig Venter faced competition in his efforts to turn algae into a cheap form of energy, then in the long term we may end up with a source of energy that is much cheaper than oil is at the present, and will not be subject to the vagaries of the economic cycles based around the folly of human nature.
The Taskforce says that more urgent action is needed from Government to address the threat of peak oil following the Gulf of Mexico oil spill. It urges the UK Coalition Government to take action to reduce the impact of the oil crunch by 2015.
See Peak Oil – Implications of the Gulf of Mexico oil spill, for the ITPOES report http://peakoiltaskforce.net/wp-content/uploads/2010/11/itpoes_deepwater-briefing-note_nov20101.pdf and see and http://www.investmentandbusinessnews.co.uk/category/climate-change, for articles here on the alternatives to oil
