The End of Cheap Oil
Oil currently sustains 6.9 billion people on this earth, and yet it is proving harder to find, harder to extract and harder to produce. What's more it's at the heart of the global economy, driving growth, maintaining overstretched supply lines, and creating the illusion that we, the human race, are above nature's constraints.
by Dan Box
The Ecologist (October 2005)
Above the noise in the bar of the exclusive Carlton Tower hotel, just off London's Sloane Square, Frank Timis was talking about himself. "I nearly killed 100 guys yesterday", he said in his thick Romanian accent. Even for Timis, the boastful, buccaneering chairman of Regal Petroleum, this was an unusual way to open the conversation.
Pausing to stub out his cigarette, Timis began to explain. Regal had, he said, found oil the previous day off the coast of Greece. So much oil, under such pressure, that it could easily have destroyed the drilling platform and ended the lives of all those working on it. "There is a billion barrels of oil there, all crude, all underwater but easy to get to", Timis said. "This is easily one of the biggest finds in the history of Europe".
The century-long era of cheap oil, and with it everything upon which our lives depend, is about to end
Soon after he publicly announced this discovery, Timis became the talk of the City, where big institutions including Merrill Lynch and Commerzbank bought into his company, sending its share price flying. Once valued at about GBP 35 million, at its peak Regal was worth over GBP 500 million. Timis, a former Romanian refugee who had fled the Ceausecu regime for Australia where he was convicted twice for heroin offences, seemed to revel in his role as London's new oil baron.
Then, in May, the bubble, burst. Regal was forced to announce that, despite the hype, "flow rates achieved from the Kallirachi well were minimal and deemed to be non-commercial". While the reservoir might indeed contain a billion barrels of oil, there was no way of getting it out of the ground fast enough to cover the cost of running the drill rig. In short, the well was a dud. The news caused the value of the company to collapse. Its shareholders suddenly became desperate to sell, and Timis lost his job.
Regal's story is typical of the current oil rush that has seen the price of oil more than double since 2004, to all-time highs of over $70 a barrel. As the oil price rose, so did the City's excitement. Investors poured their money into oil stocks, driving up the value of companies such as Regal. Inspired by this and by the multi-billion dollar profits being posted by the oil giants like BP and Shell, a new mob of smaller exploration companies set up to scour the world for new reserves, all looking to cash in.
However, it is Regal's subsequent collapse that reveals the real story. Yes there is still oil out there - both reserves that we know of, and sources still to be found. But in the rush to satisfy our ever increasing appetite for oil, we have used up almost all the oil that is easy, and therefore cheap, to obtain. The century long era of low-priced oil, and with it everything upon which our lifestyles depend, is about to end.
An insatiable thirst for oil
Figures from the International Energy Agency (IEA) show that in 2004 the world consumed an average of 82.5 million barrels of oil every single day, or if you prefer just over thirty billion barrels a year. Staggering in absolute terms, but even more astonishing to know that this represents an increase in oil consumption of over twenty percent in just over ten years.
In the first six months of this year the IEA has been forced to revise its estimates of demand growth for 2005 upwards four times. It has also had to hastily reassess its prediction that world demand would only increase by another ten percent by 2010; it now expects almost half this increase to have come by the end of this year.
What or who is driving this demand? You need look no further than China. Over the last 25 years, world oil demand has continued to grow, but at a fairly stable average of about one percent a year. Five years ago this all began to change, with the economic boom in a number of developing countries, most of all China.
Chinese oil demand has doubled over the last ten years, making it today the world's second biggest oil consumer after the US. The world's most populous country is also much less energy efficient than the US or UK. Its economy uses, on average, 1.5 barrels of oil for every $1,000 of economic output - twice the global average. The impact has been huge: almost half of new global demand since 2001 has come from China
To understand where all this will lead, the entire board of directors at the British oil giant BP flew to China this May to meet with senior politicians. What they learnt amazed them, and left them deeply worried. Within the next few years, they were told, 300 million Chinese will desert the country's farms for its cities. As a result, China will need a vast number of new roads, railways, factories and houses and, for that, they will need yet more oil. Chinese oil consumption (which rose seventeen percent last year alone) is now expected to double again over the next fifteen years.
Peter Davies, chief economist at BP, believes the impact of Chinese demand for energy has knocked away one of the foundations of the world economy. In the past, apart from the oil shocks of the 1970s, world demand for oil has been matched by supply and the price has remained low. But back then a huge proportion of the world still lived simple agrarian lives less reliant upon the consumption of fossil fuels. Globalisation has changed all that. As the board of BP learnt, the farmers of China (and India, Asia and Africa) have been told it's time to upgrade their oxen to Audis. The whole world is now set on the same fossil fuel dependant path. As Davies explained at the launch of BP's annual Statistical Review of World Energy in June: "Energy consumption is higher, prices are strong and growth has increased. This is a new starting point."
Can we meet this demand?
The Cantarell oil field, in the shallow waters of the Campeche Bay, is regarded in the Mexican oil industry as the country's crown jewel. It is the world's second-largest oil field by production, pumping about 2.2 million barrels of oil, as much as every oil field in Kuwait put together.
For that reason, the news from Petroleos Mexicanos, the state oil company, that the field's production would begin to decline this year was met with dismay. Declining production from a field typically means the pressure the oil is under is falling, so other fluids or gas must be pumped in to force what remains out of the ground, making the work harder and more expensive. The decline also ultimately leads to the point when, although much of its oil may remain in place, oil companies turn their back on the field as it has become too expensive to justify the work.
Cantarell, however, is not alone. Around the world entire countries are now suffering huge yearly declines in their oil production, tightening the world's supply and helping to push up prices. Among the most severely effected is the UK, which produced just over two million barrels of oil a day last year, a fall of over ten percent on 2003 and down from a peak of almost three million barrels a day in 1999. The same pattern can be seen in many of the other major oil-producing countries - the United States, Indonesia, Norway, Venezuela, Oman, Syria - in each, oil production has risen year on year until it hit a peak, after which it steadily declined.
This gloomy outlook was backed up this July by Chevron, the US's second largest oil company, which took out a series of double-page adverts in some of the world's leading business papers, including the Financial Times and The Economist. These read: "Energy will be one of the defining issues of this century, and one thing is clear: the era of easy oil is over ... Many of the world's oil and gas fields are maturing. And new energy discoveries are mainly occurring in places where resources are difficult to extract - physically, technically, economically, and politically". The adverts, were signed "Dave" - David O'Reilly, the company's chairman - unprecedented candour from a notoriously gung-ho industry.
Chevron's relative candour aside, ask any of the major oil companies publicly about peak oil and the line is always the same - we have enough oil to meet the current level of consumption for at least another forty years. "We have plenty of oil - number one in the world", said Mahmoud Abdul-Baqi, the Saudi Arabian state oil company Saudi Aramco's vice president of exploration, in a debate last year. "We have the potential to add more oil than anybody else. We can do that extremely successfully at a very reasonable cost. Our track record shows that we delivered for seventy years, and we're going to continue delivering for another seventy years at least."
His bullishness was backed up at BP. At the launch of the company's annual Statistical Review of World Energy this year, the company's chief economist Peter Davies said: "The peak oil forecasters have been predicting it for 100 years and we keep going through their dates. The evidence is that production keeps rising. I'm sure we will find more oil, others will find more oil ... but oil will not last forever. So far we have continued to add to proven reserves at least as much as we have produced and there is no sign on a global level that will not continue."
In every respect the facts just don't bear Abdul-Baqi, Davies or the rest of the oil industry out. For one "current levels of consumption" was made irrelevant the moment China and India swallowed the "economic growth is good" mantra. Whilst we can only estimate how much oil we are going to need in ten years' time, let alone forty, we do know that demand will not stay at "current levels of consumption".
Currently the "oil debate" is focused on three key questions: How big are existing reserves? How much oil can we recover from existing reserves? And how much more can we find? The debate is fierce and not as one sided as the current media coverage would have you believe. What's more, those who believe that demand is due to exceed supply imminently are no longer confined to the ecological / geological fringe.
How big are existing reserves?
Put simply, no one knows. The industry standard is the BP annual Statistical Review of World Energy. But at its launch this year, Peter Davies made this very clear when he said, "I should state that BP has not tried to review published national data or tried to second guess government figures, and I should say that proved reserves do not comply to the standards set for company reports".
To keep up with demand, the global oil and gas industry
will have to spend over $6 trillion by 2030
As Davies admitted, BP relies on reserve figures published by national governments and does not even attempt to independently verify these itself. These figures include those provided by the member states of the Organisation of the Petroleum Exporting Countries (OPEC) - the cartel that controls about forty percent of world oil production and includes Saudi Arabia, Kuwait, Iraq and Iran - who between them claim to be sitting on almost 900 billion barrels of recoverable oil. While many other countries outside OPEC admit their oil fields are declining after decades of production, these governments say their reserves have continued to increase.
Whether this is true, however, is far from certain. Despite these figures being among the most important in the world, no one knows if they are accurate because access to the information on which they are based remains for many OPEC countries a state secret.
What is more, there is reason to believe they are not true. During the late 1980s, OPEC countries reported massive increases in their oil reserves without, it seemed, any significant discoveries. Overnight, the United Arab Emirates alone almost tripled its official total, from 32 billion barrels to 98 billion. Kuwait, Iran, and Iraq also declared similar rises.
At the time, very little exploration or drilling for new oil was being done. What had taken place, however, was the introduction in 1983 of a new system of production quotas for individual OPEC states which tied the amount they were allowed to produce to the size of their stated reserves. The more oil a country said it had, the more it was allowed to produce - and sell. This gave them a financial incentive to lie.
Between the OPEC states, the increases in reserves announced by these countries during the 1980s exceeds the total increase in world oil reserves within the BP statistics for the years 1984 to 1994. In effect, the increase in BP's numbers could be the result of nothing more than the OPEC heads of state exaggerating their own figures in order to obtain higher quotas. It might not represent actual oil in the ground. And now that same quota system means it is not in their interests to report that their oil reserves are declining.
The trouble is that, to date, the OPEC countries have refused calls for them to open up their reserves to independent auditing and as a result it is impossible to tell whether persistent reports of decline in the OPEC states are true or not.
To further confuse matters, in the last few years, BP has also started to include oil contained in Canadian oil (or tar) sands along with more conventional sources under its figures for world reserves. This has raised eyebrows because this is not oil that has been discovered during this time, but just reserves of tar, as opposed to crude oil, that have in fact been known about for years. This accounting change helps explain the second, smaller, increase in BP's figures between 1994 and 2004.
The result is that no one really knows how much recoverable oil there is left. But with what we now know of the industry's history of creative accounting, it's unlikely to be as much as they say it is.
How much oil can we recover from existing reserves?
It is not only the size of oil reserves that is important, however, as Regal's Frank Timis learnt to his cost - if you can't get it out quickly and easily, it's of little value to the world. It's like a jar of Marmite. No one throws the jar away when it's empty, but when it's just too difficult and time consuming to get enough on your knife to cover a piece of toast. The same is true of oil.
In June, the great and the good of British business gathered at the Chatham House members' club in central London for the launch of Shell Global Scenarios to 2025. The report, weighing in at over 200 pages, presents the oil giant's analysis of potential opportunities and threats to business over the next twenty years, and is seen as the gold standard in the industry.
Quietly, but nonetheless clearly, the report admits that production from those countries outside OPEC - which account for about sixty percent of global production - "appears about to plateau in about a decade or so". By "plateau", it means the point at which production cannot increase, no matter how hard we drive the pumps. In doing so, this report backs up another, from the world's largest oil firm, ExxonMobil. Its Outlook for Energy: a 2030 View report forecasts a peak for nonOPEC production in just five years.
As a result, both Exxon and the US government are putting pressure on OPEC to increase its production to make up the loss. The Exxon report states: "Post 2010, the call on OPEC increases rapidly, requiring OPEC to add more than one million barrels a day of capacity per year.'
In May, Ali al-Naimi, the Saudi Arabia oil minister, claimed the desert kingdom alone could achieve that easily. According to al-Naimi, his country could increase production from its current level of about ten million barrels a day to twelve or even fifteen million. As with the figures for the total amount of oil held in the country's reserves, however, this could just be so much talk. Other analysts believe that the entire OPEC cartel has enough spare capacity to increase production by about one million barrels a day maximum, and this is heavy crude that most buyers either do not want or cannot refine. Yet again, the exact information is a Saudi state secret.
What is known is that the giant Ghawar field, which alone accounts for about sixty percent of Saudi production, currently needs to be injected with a reported seven million barrels of sea water every day just to maintain the pressure needed to keep the oil flowing out. To many in the oil industry this sounds like a country that is working hard just to maintain its output, not one that is able to easily increase supply when needed. Even Sadad Al-Husseini, retired chief of exploration for Saudi Aramco, responded recently to American calls for Saudi Arabia to increase production by saying that: "The American government's forecasts for future oil supplies are a dangerous overestimate".
For many within the industry it is precisely through methods such as water injection that the date the world hits peak production will be delayed. As the price of oil goes up, so the theory goes, it becomes commercially viable for companies to return to reserves they abandoned when the oil they contain became too expensive to extract. As Albert Bressand, a vice-president of Shell and author of the company's Scenarios report, told me: "Energy supply is not just a question of physical quantities of oil in the ground. When you realise that, after huge progress, we are only recovering today an average of thirty percent of the conventional oil within any reserve, we can increase this. We say there is another seventeen years of today's consumption that would be available if that rate could be increased by ten to fifteen percent."
But there are two glaring flaws with this argument. First, it relies on faith that the technology of tomorrow will be able to solve the problems of today, something not borne out by experience. As Bress and admits, after decades of work the world's most powerful companies have still not achieved anything better than a thirty percent recovery rate. Where, then, is this extra ten to fifteen percent going to come from?
The truth, as one industry insider explained to me, is less optimistic. "Anything that has been brought into production after about 1970 will have been pretty accurately surveyed and subject to impact recovery techniques pretty much since day one", he said. "No one goes out to develop an oil field badly", adding that the real reason people within the industry are so bullish in their statements is that: "Companies like to reassure their shareholders about all this new oil they can recover. Yet if you look at the North Sea, you will find that there is only one significant field where they have managed to do anything more than sustain oil production at a very low level. So if you go into a declining oil field and throw everything at it, you might maintain a low level of production, but you won't increase it", he said.
Secondly, even if Shell does discover this technology, Bressand's best estimate is that it will provide only another seventeen years of supply at today's rate of oil consumption. And it is clear from looking at events in China and elsewhere that the world is not going to see another seventeen years at today's consumption rate; in that time even the IEA predicts demand will have increased by over a quarter. Bressand's "seventeen years" of extra oil production simply will not last us that long.
Tesco reported a $9 million hike in the cost of producing its carrier bags as oil prices crashed through $61 a barrel
Digging deeper
So with known oil reserves in decline and extraction proving increasingly difficult and expensive, the oil industry would like us to believe that they have another card up their sleeve, namely "unconventional" oil reserves. Both Shell and Exxon argue that these so-called "unconventional" sources of oil - oil sand, oil shale deposits and deep sea reserves - will soon provide a huge new source of oil.
In its Outlook for Energy report, Exxon estimates that there may be more than four trillion barrels of extra heavy oil and oil sands. If, as the company assumes, 20 to 25 percent of this could be extracted, a potential 800 billion barrels could be available for use. There are also, Exxon said, three trillion barrels of synthetic oil capable of being produced from oil shale.
As with BP's figures however, it is best to dig a little deeper. Speak to Exxon staff themselves and they expect no contribution from oil shale even by 2030 and only about four million barrels per day from Canadian oil sands in that time - just a fraction of total world demand. What, then, explains the disconnection between the vast reserves and tiny amount extracted?
Oil sands are actually tar, formed from oil that has been degraded by water and air. Getting the oil out requires a huge amount of money and labour. It typically costs around fifteen dollars a barrel to produce oil from oil sands, compared to just a few dollars for conventional crude. So, to justify the work, companies will only contemplate it if the price of oil is going to remain high.
Speaking in June at a conference at London's Cass Business School, Dr Mamdouh Salameh, a consultant to the World Bank, argued that the tar sands did not have the potential to replace future shortfalls in conventional oil.
"It takes almost as much energy to mine, process, refine and upgrade the oil extracted from tar sand as the energy contained in the light oil produced. There is a small net energy gain", he said. "But it is estimated that processing a barrel of tar sand oil releases five to ten times more greenhouse gases than a barrel of conventional oil". Furthermore, processing requires huge amounts of fresh water and natural gas, both already in short supply, exacerbating the already enormous environmental impacts of the process. When the most environmentally damaging industry in the world's solution to its impending demise is a process even more damaging than the one currently wreaking havoc on the world's climate, you know we're in trouble.
Oil shale on the other hand is a misleading name, as it contains no oil but instead an organic material called kerogen, a precursor of petroleum. Getting this out requires that the shale be mined, crushed and refined, which also requires both fossil fuel energy and lots of money. To date, and despite decades of work by the oil companies, the cost of the work involved is still not commercially viable. As such, virtually no synthetic oil from kerogen is currently being produced and few expect this to change any time soon.
This leaves deep-water extraction (drilling for oil where the sea bed is often 7,000 metres or more below the surface). Up until recently, the low price of oil has made deep-water extraction economically unviable. However, the recent price rises, coupled with improvements in technology, have reduced the price of extraction, encouraging a few oil companies to look more favourably into the deep. But this is not for the faint-hearted, as platforms can cost upwards of $1 billion to establish, so it is still really only available to the ultra-large companies who can stump up the initial capital necessary.
Given the IEA estimates that, to keep up with demand, the global oil and gas industry will have to spend over $6 trillion by 2030, most of it on exploration and production, it's possible that these unconventional supplies may help to maintain world oil supply. But one fact is certain, it won't be cheap.
The last chance saloon - finding more oil
The only hope left for cheap oil, then, is that there is still a lot of it out there to be found. Once again, however, the signs are not good.
As well as casting doubt on the scale of the world's known oil reserves, the Shell Global Scenarios to 2025 report charts the history of oil discoveries around the world, which can be seen to peak in the mid-1970s before beginning to decline. (According to ExxonMobil the actual date of discovery peak was 1963-64). We are now sliding down the far side of this decline; fewer discoveries were made last year than any year since 1952. By 2040, the Shell figures predict, there will be almost no new oil being discovered.
"While major new finds cannot be ruled out, recent statistics do provide worrisome signals ... Discoveries only replaced some 45 percent of production since 1999. In addition, the number of discoveries is increasing but discoveries are getting smaller in size", said the report.
On top of this, earlier this year Shell stunned the City when it admitted that, over the past year, it had only found enough new reserves of oil to replace 15 to 25 percent of its production in that time. In short, for every four barrels of oil sold, the company had found less than one new barrel to replace it.
Likewise, in March Chevron, the second-largest energy group in the US, also announced that its reserves replacement ratio had fallen to eighteen percent. Even BP and ExxonMobil - the biggest oil companies in Europe and the US - replaced just 89 percent and 83 percent respectively last year. This means that, while they may have enough oil to satisfy their customers' demands today, unless they find truly vast new reserves soon, they will not have enough oil to do so tomorrow.
The same is happening on a global scale. According to figures from one of the world's leading private oil consultancies, IHS Energy, over the last decade global consumption of oil has averaged about 26 billion barrels a year. During this time the average amount of new oil reserves found each year has been just 7.4 billion barrels.
And even if they do manage to find and produce all the oil from the bottom of the ocean, more and more analysts believe it will only be around another seventy billion barrels, enough for little more than two years of expensive oil at current rates of consumption. Hardly a reason to rejoice.
The 1970s saw the first and second world oil crises. What we are talking about now is the third, and final, crisis
So, when will oil peak?
In truth, estimates vary. The United States Geological Survey says not for thirty years. The IEA expects it to happen anywhere between 2013 and 2037. The London Energy Institute says 2008.
A report by the US Department of Energy on the military significance of America's own oil reserves last year, said: "The disparity between increasing production and declining discoveries can have only one outcome: a practical supply limit will be reached and future supply to meet conventional oil demand will not be available".
This event, the report said, is now inevitable. It continues "[A range of experts] expect the peak will occur between 2003 and 2020. What is notable ... is that none extend beyond the year 2020, suggesting the world may be facing shortfalls much sooner than expected."
To date, perhaps the most authoritative analysis of this issue has been done by the internationally respected Energy Institute, based in London. Using data compiled from, among others, BP's own figures, this analysis compares three things: the increase in oil production from all major new projects due to come on line by 2012, the natural decline in production from existing reserves, and the expected growth in global oil demand.
Over each of the last few years, the production of oil from entire countries has peaked and fallen into decline, said Chris Skrebowski, who compiled the analysis for the Institute. "Mexico is going over the edge, China may or may not be going over, Denmark has definitely gone over the top this year", he said. "If the 1970s saw the first and second world oil crises, what we are talking about now is the third, final, crisis. We should be worried. Time is short and we are not even at the point where we admit we have a problem."
Just how short? The report's conclusion is grim. Global demand for oil could finally exceed supply as early as the winter of this year.
And then what?
According to those analysts working with Hubbert's model (see box below), once oil production does hit a peak it can be expected to decline by between two and seven percent a year.
Realistically, no one knows how fast this decline will be - it could be faster. In the North Sea, when production peaked in 1999, the decline has been much quicker than expected; ten percent last year and over eight percent the year before that.
As a result, Britain's own supplies of oil have been unable to meet national demand and the country has had to rely on more expensive imports. The price of oil has gone up.
Jeff Rubin, world markets chief economist at the CIBC international bank, believes prices will have to rise to as much as $101 a barrel by 2010 just to suppress demand enough to keep it in line with struggling supply.
"Economists and bankers will deny this because it runs counter to their models of supply and demand", he said. "These say that higher prices bring more supply, but this is not economics, we are looking at a geological peak in world oil production. There will be no increase in production because the supplies of oil do not exist."
Significantly, Rubin is not alone. In May, the US investment bank Goldman Sachs released a report arguing that oil markets had entered into a "superspike" period that could see prices reach as high as $105 a barrel. Meanwhile on the futures markets, where contracts are agreed to buy and sell oil at agreed dates up to years in advance, traders are also increasingly beginning to bet on $100 a barrel.
But don't just look to the future. The signs are already here. Global expenditure on oil has risen by over $1 trillion since 2001, according to figures from the US investment group Oak Associates. Last year in the UK, domestic electricity and gas bills rose by about twenty percent and the industry's leaders are promising "significant double digit" price rises again this winter. And in June, Tesco reported a GBP 9 million hike in the cost of producing its carrier bags as oil prices crashed through $61 a barrel. Although the supermarket did not say so, many expect these costs to be passed on to its consumers through increased costs of other products. First petrol, then plastic bags, then the food within them. Life is about to get a lot more expensive.
Yet still nothing is being done to wean us off our addiction to oil.
In May the International Energy Agency prepared a report entitled Saving Oil in a Hurry. This laid out a range of emergency oil-saving measures that oil importing countries, such as the US, should implement if world supplies fall by as little as one to two million barrels a day - equivalent to the disruptions caused by the 2003 Iraq war, or Hurricane Katrina. These include reducing motorway speed limits by 25 percent, shortening the working week, driving bans on certain days, free public transport and promoting carpooling schemes. Elsewhere in the world some of these measures have already taken place. During May and June, the Philippines cut the working week for its civil servants to four days to reduce energy demand as part of desperate attempt to reduce 300,000 barrels a day of oil imports.
And yet the world remains totally unprepared. Or as Kelvin Beer, currently chairing a study by the World Energy Council into energy security, commented: "Oil itself has been very lucky. It's had no competitors and there is no substitute. It's that good that you can tax it like crazy and people will still pay for it. The reason for that has been the internal combustion engine, the world economy is built on this invention and no one has attempted to replace it."
* Dan Box is a correspondent for the Sunday Times
Box: Hubbert's Peak
In 1956, at a meeting of the American Petroleum Institute in San Antonio, US geophysicist, M King Hubbert predicted that US oil production - which until then had been constantly increasing - would peak in the early 1970s, and then start to fall.
To describe this he drew a graph of the total volume of oil discovered each year in the US; the result was a bell-shaped curve that started at nothing, climbed as more oil was found, then peaked and started to decline. What shocked his audience was that Hubbert went on to argue that the same bell- shaped curve model that governed the rate at which discoveries would be made could also be used to predict US oil production itself, with production of any particular oil reserve peaking and declining some years after the same points were reached for discovery, but following a similar bell curve. The reason, he explained, was that companies would naturally exploit those big, easily accessible reserves first, before turning to smaller reserves that cost more to work and produced much less oil.
At the time, almost everybody inside and outside the oil industry rejected the idea. Hubbert later said that Shell head office was on the telephone right down to the last five minutes before his San Antonio talk, asking him to withdraw his words. He refused. The controversy raged until 1970, when the US production of oil started to fall. Hubbert was proved right. The big difference between Hubbert's day and now is the number of senior analysts within the oil industry who have come to the same conclusion as him and now also predict a looming peak in global oil production.
Box: Oil Dependence
As can been seen below, there isn't an aspect of our lives that won't be affected by the rising oil price.
Motor Gasoline (45.7%)
Distillate Fuel Oil (22.5%) - Home Heating Oil, Diesel Fuel, Refinery Fuel, Industrial Fuel
Kerosene-Type Jet Fuel (10.3%)
Residual Fuel Oil (4.7%) - Boiler Fuel, Refinery Fuel, Bunker Fuel, Wood Preservative
Petroleum Coke (4.6%) - Carbon Electrodes, Fuel Coke, Electric Switches
Liquefied Refinery Gases (4.6%) - Petrochemical feedstocks, Space heating, Cooking, Synthetic Rubber
Still Gas Refinery Fuel (4.4%)
Asphalt & Road Oil (3.2%) - Paving, Roofing, Waterproofing
Petrochemical Feedstocks (2.9%) - Alcohols, Resins, Ethers, Fibres, Medicines, Cosmetics
Lubricants (1.2%) - Lubricating Oils, Greases, Transmission Oils, Household Oils, Textile Spindle Oils
Kerosene (0.4%) - Illumination, Space Heating, Cooking, Tractor fuel
Special Naphtates (0.3%) - Solvents, Paint Thinner
Miscellaneous Products (0.3%) - Absorber oil, White Machinery Oils, Cutting Oils, Candymaking, Baking Oils, Technical Oils, Medicinal Salves, Ointments, Petroleum Jelly, Acetic Acids, Sulfuric Acid, Fertilizers
Waxes (0.2%) - Used for Fruits, Vegetables, Candy, Chewing Gum, Candles, Matches, Crayons, Pencils, Sealing Wax, Canning Wax
Aviation Gasoline (0.2%)
The Ecologist web site is http://www.theecologist.org/home.asp
Bill Totten http://www.ashisuto.co.jp/english/
by Dan Box
The Ecologist (October 2005)
Above the noise in the bar of the exclusive Carlton Tower hotel, just off London's Sloane Square, Frank Timis was talking about himself. "I nearly killed 100 guys yesterday", he said in his thick Romanian accent. Even for Timis, the boastful, buccaneering chairman of Regal Petroleum, this was an unusual way to open the conversation.
Pausing to stub out his cigarette, Timis began to explain. Regal had, he said, found oil the previous day off the coast of Greece. So much oil, under such pressure, that it could easily have destroyed the drilling platform and ended the lives of all those working on it. "There is a billion barrels of oil there, all crude, all underwater but easy to get to", Timis said. "This is easily one of the biggest finds in the history of Europe".
The century-long era of cheap oil, and with it everything upon which our lives depend, is about to end
Soon after he publicly announced this discovery, Timis became the talk of the City, where big institutions including Merrill Lynch and Commerzbank bought into his company, sending its share price flying. Once valued at about GBP 35 million, at its peak Regal was worth over GBP 500 million. Timis, a former Romanian refugee who had fled the Ceausecu regime for Australia where he was convicted twice for heroin offences, seemed to revel in his role as London's new oil baron.
Then, in May, the bubble, burst. Regal was forced to announce that, despite the hype, "flow rates achieved from the Kallirachi well were minimal and deemed to be non-commercial". While the reservoir might indeed contain a billion barrels of oil, there was no way of getting it out of the ground fast enough to cover the cost of running the drill rig. In short, the well was a dud. The news caused the value of the company to collapse. Its shareholders suddenly became desperate to sell, and Timis lost his job.
Regal's story is typical of the current oil rush that has seen the price of oil more than double since 2004, to all-time highs of over $70 a barrel. As the oil price rose, so did the City's excitement. Investors poured their money into oil stocks, driving up the value of companies such as Regal. Inspired by this and by the multi-billion dollar profits being posted by the oil giants like BP and Shell, a new mob of smaller exploration companies set up to scour the world for new reserves, all looking to cash in.
However, it is Regal's subsequent collapse that reveals the real story. Yes there is still oil out there - both reserves that we know of, and sources still to be found. But in the rush to satisfy our ever increasing appetite for oil, we have used up almost all the oil that is easy, and therefore cheap, to obtain. The century long era of low-priced oil, and with it everything upon which our lifestyles depend, is about to end.
An insatiable thirst for oil
Figures from the International Energy Agency (IEA) show that in 2004 the world consumed an average of 82.5 million barrels of oil every single day, or if you prefer just over thirty billion barrels a year. Staggering in absolute terms, but even more astonishing to know that this represents an increase in oil consumption of over twenty percent in just over ten years.
In the first six months of this year the IEA has been forced to revise its estimates of demand growth for 2005 upwards four times. It has also had to hastily reassess its prediction that world demand would only increase by another ten percent by 2010; it now expects almost half this increase to have come by the end of this year.
What or who is driving this demand? You need look no further than China. Over the last 25 years, world oil demand has continued to grow, but at a fairly stable average of about one percent a year. Five years ago this all began to change, with the economic boom in a number of developing countries, most of all China.
Chinese oil demand has doubled over the last ten years, making it today the world's second biggest oil consumer after the US. The world's most populous country is also much less energy efficient than the US or UK. Its economy uses, on average, 1.5 barrels of oil for every $1,000 of economic output - twice the global average. The impact has been huge: almost half of new global demand since 2001 has come from China
To understand where all this will lead, the entire board of directors at the British oil giant BP flew to China this May to meet with senior politicians. What they learnt amazed them, and left them deeply worried. Within the next few years, they were told, 300 million Chinese will desert the country's farms for its cities. As a result, China will need a vast number of new roads, railways, factories and houses and, for that, they will need yet more oil. Chinese oil consumption (which rose seventeen percent last year alone) is now expected to double again over the next fifteen years.
Peter Davies, chief economist at BP, believes the impact of Chinese demand for energy has knocked away one of the foundations of the world economy. In the past, apart from the oil shocks of the 1970s, world demand for oil has been matched by supply and the price has remained low. But back then a huge proportion of the world still lived simple agrarian lives less reliant upon the consumption of fossil fuels. Globalisation has changed all that. As the board of BP learnt, the farmers of China (and India, Asia and Africa) have been told it's time to upgrade their oxen to Audis. The whole world is now set on the same fossil fuel dependant path. As Davies explained at the launch of BP's annual Statistical Review of World Energy in June: "Energy consumption is higher, prices are strong and growth has increased. This is a new starting point."
Can we meet this demand?
The Cantarell oil field, in the shallow waters of the Campeche Bay, is regarded in the Mexican oil industry as the country's crown jewel. It is the world's second-largest oil field by production, pumping about 2.2 million barrels of oil, as much as every oil field in Kuwait put together.
For that reason, the news from Petroleos Mexicanos, the state oil company, that the field's production would begin to decline this year was met with dismay. Declining production from a field typically means the pressure the oil is under is falling, so other fluids or gas must be pumped in to force what remains out of the ground, making the work harder and more expensive. The decline also ultimately leads to the point when, although much of its oil may remain in place, oil companies turn their back on the field as it has become too expensive to justify the work.
Cantarell, however, is not alone. Around the world entire countries are now suffering huge yearly declines in their oil production, tightening the world's supply and helping to push up prices. Among the most severely effected is the UK, which produced just over two million barrels of oil a day last year, a fall of over ten percent on 2003 and down from a peak of almost three million barrels a day in 1999. The same pattern can be seen in many of the other major oil-producing countries - the United States, Indonesia, Norway, Venezuela, Oman, Syria - in each, oil production has risen year on year until it hit a peak, after which it steadily declined.
This gloomy outlook was backed up this July by Chevron, the US's second largest oil company, which took out a series of double-page adverts in some of the world's leading business papers, including the Financial Times and The Economist. These read: "Energy will be one of the defining issues of this century, and one thing is clear: the era of easy oil is over ... Many of the world's oil and gas fields are maturing. And new energy discoveries are mainly occurring in places where resources are difficult to extract - physically, technically, economically, and politically". The adverts, were signed "Dave" - David O'Reilly, the company's chairman - unprecedented candour from a notoriously gung-ho industry.
Chevron's relative candour aside, ask any of the major oil companies publicly about peak oil and the line is always the same - we have enough oil to meet the current level of consumption for at least another forty years. "We have plenty of oil - number one in the world", said Mahmoud Abdul-Baqi, the Saudi Arabian state oil company Saudi Aramco's vice president of exploration, in a debate last year. "We have the potential to add more oil than anybody else. We can do that extremely successfully at a very reasonable cost. Our track record shows that we delivered for seventy years, and we're going to continue delivering for another seventy years at least."
His bullishness was backed up at BP. At the launch of the company's annual Statistical Review of World Energy this year, the company's chief economist Peter Davies said: "The peak oil forecasters have been predicting it for 100 years and we keep going through their dates. The evidence is that production keeps rising. I'm sure we will find more oil, others will find more oil ... but oil will not last forever. So far we have continued to add to proven reserves at least as much as we have produced and there is no sign on a global level that will not continue."
In every respect the facts just don't bear Abdul-Baqi, Davies or the rest of the oil industry out. For one "current levels of consumption" was made irrelevant the moment China and India swallowed the "economic growth is good" mantra. Whilst we can only estimate how much oil we are going to need in ten years' time, let alone forty, we do know that demand will not stay at "current levels of consumption".
Currently the "oil debate" is focused on three key questions: How big are existing reserves? How much oil can we recover from existing reserves? And how much more can we find? The debate is fierce and not as one sided as the current media coverage would have you believe. What's more, those who believe that demand is due to exceed supply imminently are no longer confined to the ecological / geological fringe.
How big are existing reserves?
Put simply, no one knows. The industry standard is the BP annual Statistical Review of World Energy. But at its launch this year, Peter Davies made this very clear when he said, "I should state that BP has not tried to review published national data or tried to second guess government figures, and I should say that proved reserves do not comply to the standards set for company reports".
To keep up with demand, the global oil and gas industry
will have to spend over $6 trillion by 2030
As Davies admitted, BP relies on reserve figures published by national governments and does not even attempt to independently verify these itself. These figures include those provided by the member states of the Organisation of the Petroleum Exporting Countries (OPEC) - the cartel that controls about forty percent of world oil production and includes Saudi Arabia, Kuwait, Iraq and Iran - who between them claim to be sitting on almost 900 billion barrels of recoverable oil. While many other countries outside OPEC admit their oil fields are declining after decades of production, these governments say their reserves have continued to increase.
Whether this is true, however, is far from certain. Despite these figures being among the most important in the world, no one knows if they are accurate because access to the information on which they are based remains for many OPEC countries a state secret.
What is more, there is reason to believe they are not true. During the late 1980s, OPEC countries reported massive increases in their oil reserves without, it seemed, any significant discoveries. Overnight, the United Arab Emirates alone almost tripled its official total, from 32 billion barrels to 98 billion. Kuwait, Iran, and Iraq also declared similar rises.
At the time, very little exploration or drilling for new oil was being done. What had taken place, however, was the introduction in 1983 of a new system of production quotas for individual OPEC states which tied the amount they were allowed to produce to the size of their stated reserves. The more oil a country said it had, the more it was allowed to produce - and sell. This gave them a financial incentive to lie.
Between the OPEC states, the increases in reserves announced by these countries during the 1980s exceeds the total increase in world oil reserves within the BP statistics for the years 1984 to 1994. In effect, the increase in BP's numbers could be the result of nothing more than the OPEC heads of state exaggerating their own figures in order to obtain higher quotas. It might not represent actual oil in the ground. And now that same quota system means it is not in their interests to report that their oil reserves are declining.
The trouble is that, to date, the OPEC countries have refused calls for them to open up their reserves to independent auditing and as a result it is impossible to tell whether persistent reports of decline in the OPEC states are true or not.
To further confuse matters, in the last few years, BP has also started to include oil contained in Canadian oil (or tar) sands along with more conventional sources under its figures for world reserves. This has raised eyebrows because this is not oil that has been discovered during this time, but just reserves of tar, as opposed to crude oil, that have in fact been known about for years. This accounting change helps explain the second, smaller, increase in BP's figures between 1994 and 2004.
The result is that no one really knows how much recoverable oil there is left. But with what we now know of the industry's history of creative accounting, it's unlikely to be as much as they say it is.
How much oil can we recover from existing reserves?
It is not only the size of oil reserves that is important, however, as Regal's Frank Timis learnt to his cost - if you can't get it out quickly and easily, it's of little value to the world. It's like a jar of Marmite. No one throws the jar away when it's empty, but when it's just too difficult and time consuming to get enough on your knife to cover a piece of toast. The same is true of oil.
In June, the great and the good of British business gathered at the Chatham House members' club in central London for the launch of Shell Global Scenarios to 2025. The report, weighing in at over 200 pages, presents the oil giant's analysis of potential opportunities and threats to business over the next twenty years, and is seen as the gold standard in the industry.
Quietly, but nonetheless clearly, the report admits that production from those countries outside OPEC - which account for about sixty percent of global production - "appears about to plateau in about a decade or so". By "plateau", it means the point at which production cannot increase, no matter how hard we drive the pumps. In doing so, this report backs up another, from the world's largest oil firm, ExxonMobil. Its Outlook for Energy: a 2030 View report forecasts a peak for nonOPEC production in just five years.
As a result, both Exxon and the US government are putting pressure on OPEC to increase its production to make up the loss. The Exxon report states: "Post 2010, the call on OPEC increases rapidly, requiring OPEC to add more than one million barrels a day of capacity per year.'
In May, Ali al-Naimi, the Saudi Arabia oil minister, claimed the desert kingdom alone could achieve that easily. According to al-Naimi, his country could increase production from its current level of about ten million barrels a day to twelve or even fifteen million. As with the figures for the total amount of oil held in the country's reserves, however, this could just be so much talk. Other analysts believe that the entire OPEC cartel has enough spare capacity to increase production by about one million barrels a day maximum, and this is heavy crude that most buyers either do not want or cannot refine. Yet again, the exact information is a Saudi state secret.
What is known is that the giant Ghawar field, which alone accounts for about sixty percent of Saudi production, currently needs to be injected with a reported seven million barrels of sea water every day just to maintain the pressure needed to keep the oil flowing out. To many in the oil industry this sounds like a country that is working hard just to maintain its output, not one that is able to easily increase supply when needed. Even Sadad Al-Husseini, retired chief of exploration for Saudi Aramco, responded recently to American calls for Saudi Arabia to increase production by saying that: "The American government's forecasts for future oil supplies are a dangerous overestimate".
For many within the industry it is precisely through methods such as water injection that the date the world hits peak production will be delayed. As the price of oil goes up, so the theory goes, it becomes commercially viable for companies to return to reserves they abandoned when the oil they contain became too expensive to extract. As Albert Bressand, a vice-president of Shell and author of the company's Scenarios report, told me: "Energy supply is not just a question of physical quantities of oil in the ground. When you realise that, after huge progress, we are only recovering today an average of thirty percent of the conventional oil within any reserve, we can increase this. We say there is another seventeen years of today's consumption that would be available if that rate could be increased by ten to fifteen percent."
But there are two glaring flaws with this argument. First, it relies on faith that the technology of tomorrow will be able to solve the problems of today, something not borne out by experience. As Bress and admits, after decades of work the world's most powerful companies have still not achieved anything better than a thirty percent recovery rate. Where, then, is this extra ten to fifteen percent going to come from?
The truth, as one industry insider explained to me, is less optimistic. "Anything that has been brought into production after about 1970 will have been pretty accurately surveyed and subject to impact recovery techniques pretty much since day one", he said. "No one goes out to develop an oil field badly", adding that the real reason people within the industry are so bullish in their statements is that: "Companies like to reassure their shareholders about all this new oil they can recover. Yet if you look at the North Sea, you will find that there is only one significant field where they have managed to do anything more than sustain oil production at a very low level. So if you go into a declining oil field and throw everything at it, you might maintain a low level of production, but you won't increase it", he said.
Secondly, even if Shell does discover this technology, Bressand's best estimate is that it will provide only another seventeen years of supply at today's rate of oil consumption. And it is clear from looking at events in China and elsewhere that the world is not going to see another seventeen years at today's consumption rate; in that time even the IEA predicts demand will have increased by over a quarter. Bressand's "seventeen years" of extra oil production simply will not last us that long.
Tesco reported a $9 million hike in the cost of producing its carrier bags as oil prices crashed through $61 a barrel
Digging deeper
So with known oil reserves in decline and extraction proving increasingly difficult and expensive, the oil industry would like us to believe that they have another card up their sleeve, namely "unconventional" oil reserves. Both Shell and Exxon argue that these so-called "unconventional" sources of oil - oil sand, oil shale deposits and deep sea reserves - will soon provide a huge new source of oil.
In its Outlook for Energy report, Exxon estimates that there may be more than four trillion barrels of extra heavy oil and oil sands. If, as the company assumes, 20 to 25 percent of this could be extracted, a potential 800 billion barrels could be available for use. There are also, Exxon said, three trillion barrels of synthetic oil capable of being produced from oil shale.
As with BP's figures however, it is best to dig a little deeper. Speak to Exxon staff themselves and they expect no contribution from oil shale even by 2030 and only about four million barrels per day from Canadian oil sands in that time - just a fraction of total world demand. What, then, explains the disconnection between the vast reserves and tiny amount extracted?
Oil sands are actually tar, formed from oil that has been degraded by water and air. Getting the oil out requires a huge amount of money and labour. It typically costs around fifteen dollars a barrel to produce oil from oil sands, compared to just a few dollars for conventional crude. So, to justify the work, companies will only contemplate it if the price of oil is going to remain high.
Speaking in June at a conference at London's Cass Business School, Dr Mamdouh Salameh, a consultant to the World Bank, argued that the tar sands did not have the potential to replace future shortfalls in conventional oil.
"It takes almost as much energy to mine, process, refine and upgrade the oil extracted from tar sand as the energy contained in the light oil produced. There is a small net energy gain", he said. "But it is estimated that processing a barrel of tar sand oil releases five to ten times more greenhouse gases than a barrel of conventional oil". Furthermore, processing requires huge amounts of fresh water and natural gas, both already in short supply, exacerbating the already enormous environmental impacts of the process. When the most environmentally damaging industry in the world's solution to its impending demise is a process even more damaging than the one currently wreaking havoc on the world's climate, you know we're in trouble.
Oil shale on the other hand is a misleading name, as it contains no oil but instead an organic material called kerogen, a precursor of petroleum. Getting this out requires that the shale be mined, crushed and refined, which also requires both fossil fuel energy and lots of money. To date, and despite decades of work by the oil companies, the cost of the work involved is still not commercially viable. As such, virtually no synthetic oil from kerogen is currently being produced and few expect this to change any time soon.
This leaves deep-water extraction (drilling for oil where the sea bed is often 7,000 metres or more below the surface). Up until recently, the low price of oil has made deep-water extraction economically unviable. However, the recent price rises, coupled with improvements in technology, have reduced the price of extraction, encouraging a few oil companies to look more favourably into the deep. But this is not for the faint-hearted, as platforms can cost upwards of $1 billion to establish, so it is still really only available to the ultra-large companies who can stump up the initial capital necessary.
Given the IEA estimates that, to keep up with demand, the global oil and gas industry will have to spend over $6 trillion by 2030, most of it on exploration and production, it's possible that these unconventional supplies may help to maintain world oil supply. But one fact is certain, it won't be cheap.
The last chance saloon - finding more oil
The only hope left for cheap oil, then, is that there is still a lot of it out there to be found. Once again, however, the signs are not good.
As well as casting doubt on the scale of the world's known oil reserves, the Shell Global Scenarios to 2025 report charts the history of oil discoveries around the world, which can be seen to peak in the mid-1970s before beginning to decline. (According to ExxonMobil the actual date of discovery peak was 1963-64). We are now sliding down the far side of this decline; fewer discoveries were made last year than any year since 1952. By 2040, the Shell figures predict, there will be almost no new oil being discovered.
"While major new finds cannot be ruled out, recent statistics do provide worrisome signals ... Discoveries only replaced some 45 percent of production since 1999. In addition, the number of discoveries is increasing but discoveries are getting smaller in size", said the report.
On top of this, earlier this year Shell stunned the City when it admitted that, over the past year, it had only found enough new reserves of oil to replace 15 to 25 percent of its production in that time. In short, for every four barrels of oil sold, the company had found less than one new barrel to replace it.
Likewise, in March Chevron, the second-largest energy group in the US, also announced that its reserves replacement ratio had fallen to eighteen percent. Even BP and ExxonMobil - the biggest oil companies in Europe and the US - replaced just 89 percent and 83 percent respectively last year. This means that, while they may have enough oil to satisfy their customers' demands today, unless they find truly vast new reserves soon, they will not have enough oil to do so tomorrow.
The same is happening on a global scale. According to figures from one of the world's leading private oil consultancies, IHS Energy, over the last decade global consumption of oil has averaged about 26 billion barrels a year. During this time the average amount of new oil reserves found each year has been just 7.4 billion barrels.
And even if they do manage to find and produce all the oil from the bottom of the ocean, more and more analysts believe it will only be around another seventy billion barrels, enough for little more than two years of expensive oil at current rates of consumption. Hardly a reason to rejoice.
The 1970s saw the first and second world oil crises. What we are talking about now is the third, and final, crisis
So, when will oil peak?
In truth, estimates vary. The United States Geological Survey says not for thirty years. The IEA expects it to happen anywhere between 2013 and 2037. The London Energy Institute says 2008.
A report by the US Department of Energy on the military significance of America's own oil reserves last year, said: "The disparity between increasing production and declining discoveries can have only one outcome: a practical supply limit will be reached and future supply to meet conventional oil demand will not be available".
This event, the report said, is now inevitable. It continues "[A range of experts] expect the peak will occur between 2003 and 2020. What is notable ... is that none extend beyond the year 2020, suggesting the world may be facing shortfalls much sooner than expected."
To date, perhaps the most authoritative analysis of this issue has been done by the internationally respected Energy Institute, based in London. Using data compiled from, among others, BP's own figures, this analysis compares three things: the increase in oil production from all major new projects due to come on line by 2012, the natural decline in production from existing reserves, and the expected growth in global oil demand.
Over each of the last few years, the production of oil from entire countries has peaked and fallen into decline, said Chris Skrebowski, who compiled the analysis for the Institute. "Mexico is going over the edge, China may or may not be going over, Denmark has definitely gone over the top this year", he said. "If the 1970s saw the first and second world oil crises, what we are talking about now is the third, final, crisis. We should be worried. Time is short and we are not even at the point where we admit we have a problem."
Just how short? The report's conclusion is grim. Global demand for oil could finally exceed supply as early as the winter of this year.
And then what?
According to those analysts working with Hubbert's model (see box below), once oil production does hit a peak it can be expected to decline by between two and seven percent a year.
Realistically, no one knows how fast this decline will be - it could be faster. In the North Sea, when production peaked in 1999, the decline has been much quicker than expected; ten percent last year and over eight percent the year before that.
As a result, Britain's own supplies of oil have been unable to meet national demand and the country has had to rely on more expensive imports. The price of oil has gone up.
Jeff Rubin, world markets chief economist at the CIBC international bank, believes prices will have to rise to as much as $101 a barrel by 2010 just to suppress demand enough to keep it in line with struggling supply.
"Economists and bankers will deny this because it runs counter to their models of supply and demand", he said. "These say that higher prices bring more supply, but this is not economics, we are looking at a geological peak in world oil production. There will be no increase in production because the supplies of oil do not exist."
Significantly, Rubin is not alone. In May, the US investment bank Goldman Sachs released a report arguing that oil markets had entered into a "superspike" period that could see prices reach as high as $105 a barrel. Meanwhile on the futures markets, where contracts are agreed to buy and sell oil at agreed dates up to years in advance, traders are also increasingly beginning to bet on $100 a barrel.
But don't just look to the future. The signs are already here. Global expenditure on oil has risen by over $1 trillion since 2001, according to figures from the US investment group Oak Associates. Last year in the UK, domestic electricity and gas bills rose by about twenty percent and the industry's leaders are promising "significant double digit" price rises again this winter. And in June, Tesco reported a GBP 9 million hike in the cost of producing its carrier bags as oil prices crashed through $61 a barrel. Although the supermarket did not say so, many expect these costs to be passed on to its consumers through increased costs of other products. First petrol, then plastic bags, then the food within them. Life is about to get a lot more expensive.
Yet still nothing is being done to wean us off our addiction to oil.
In May the International Energy Agency prepared a report entitled Saving Oil in a Hurry. This laid out a range of emergency oil-saving measures that oil importing countries, such as the US, should implement if world supplies fall by as little as one to two million barrels a day - equivalent to the disruptions caused by the 2003 Iraq war, or Hurricane Katrina. These include reducing motorway speed limits by 25 percent, shortening the working week, driving bans on certain days, free public transport and promoting carpooling schemes. Elsewhere in the world some of these measures have already taken place. During May and June, the Philippines cut the working week for its civil servants to four days to reduce energy demand as part of desperate attempt to reduce 300,000 barrels a day of oil imports.
And yet the world remains totally unprepared. Or as Kelvin Beer, currently chairing a study by the World Energy Council into energy security, commented: "Oil itself has been very lucky. It's had no competitors and there is no substitute. It's that good that you can tax it like crazy and people will still pay for it. The reason for that has been the internal combustion engine, the world economy is built on this invention and no one has attempted to replace it."
* Dan Box is a correspondent for the Sunday Times
Box: Hubbert's Peak
In 1956, at a meeting of the American Petroleum Institute in San Antonio, US geophysicist, M King Hubbert predicted that US oil production - which until then had been constantly increasing - would peak in the early 1970s, and then start to fall.
To describe this he drew a graph of the total volume of oil discovered each year in the US; the result was a bell-shaped curve that started at nothing, climbed as more oil was found, then peaked and started to decline. What shocked his audience was that Hubbert went on to argue that the same bell- shaped curve model that governed the rate at which discoveries would be made could also be used to predict US oil production itself, with production of any particular oil reserve peaking and declining some years after the same points were reached for discovery, but following a similar bell curve. The reason, he explained, was that companies would naturally exploit those big, easily accessible reserves first, before turning to smaller reserves that cost more to work and produced much less oil.
At the time, almost everybody inside and outside the oil industry rejected the idea. Hubbert later said that Shell head office was on the telephone right down to the last five minutes before his San Antonio talk, asking him to withdraw his words. He refused. The controversy raged until 1970, when the US production of oil started to fall. Hubbert was proved right. The big difference between Hubbert's day and now is the number of senior analysts within the oil industry who have come to the same conclusion as him and now also predict a looming peak in global oil production.
Box: Oil Dependence
As can been seen below, there isn't an aspect of our lives that won't be affected by the rising oil price.
Motor Gasoline (45.7%)
Distillate Fuel Oil (22.5%) - Home Heating Oil, Diesel Fuel, Refinery Fuel, Industrial Fuel
Kerosene-Type Jet Fuel (10.3%)
Residual Fuel Oil (4.7%) - Boiler Fuel, Refinery Fuel, Bunker Fuel, Wood Preservative
Petroleum Coke (4.6%) - Carbon Electrodes, Fuel Coke, Electric Switches
Liquefied Refinery Gases (4.6%) - Petrochemical feedstocks, Space heating, Cooking, Synthetic Rubber
Still Gas Refinery Fuel (4.4%)
Asphalt & Road Oil (3.2%) - Paving, Roofing, Waterproofing
Petrochemical Feedstocks (2.9%) - Alcohols, Resins, Ethers, Fibres, Medicines, Cosmetics
Lubricants (1.2%) - Lubricating Oils, Greases, Transmission Oils, Household Oils, Textile Spindle Oils
Kerosene (0.4%) - Illumination, Space Heating, Cooking, Tractor fuel
Special Naphtates (0.3%) - Solvents, Paint Thinner
Miscellaneous Products (0.3%) - Absorber oil, White Machinery Oils, Cutting Oils, Candymaking, Baking Oils, Technical Oils, Medicinal Salves, Ointments, Petroleum Jelly, Acetic Acids, Sulfuric Acid, Fertilizers
Waxes (0.2%) - Used for Fruits, Vegetables, Candy, Chewing Gum, Candles, Matches, Crayons, Pencils, Sealing Wax, Canning Wax
Aviation Gasoline (0.2%)
The Ecologist web site is http://www.theecologist.org/home.asp
Bill Totten http://www.ashisuto.co.jp/english/
posted by Bill Totten at
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