'Peak oil' is coming soon say BP critics

Posted: 11 July 2007

Last month, the oil company BP, reported that there were sufficient oil reserves to meet current demands for another 40 years. It said there was no need to be concerned about global scarcity, despite cutting its estimates for proven reserves for the first time in 16 years. These claims have since been hotly disputed.

In its annual Statistical Review, BP said there were still enough oil discoveries to be exploited to meet the world's current production levels until 2050. However, the group admitted that total worldwide proven reserves, ready to be extracted, had fallen by one billion barrels to 1.208 trillion. Norway and Mexico both faced falling estimates.

BP's influential report coincided with a warning from the International Energy Agency that crude prices may surge later this year given supply constraints. It has been followed by a further warning from the IEA(on July 9, 2007) that the world wil face a "supply crunch" by 2012. According to the agency's Medium-Term Oil Market Report, this will follow weak increases in oil output from non-Opec countries coinciding with strong demand and diminished spare capacity within the cartel of oil producers. This mirrors other warning voices.

Indeed, some leading oil experts claim that 'peak oil' production (when demand begins to outrip supply) is likely to come much sooner than oil companies, and governments, are ready to admit.

solar power tower
solar power tower
EU's first commercial concentrating solar power tower near Seville, Spain (Photo courtesy Abengoa)
According to Daniel Howden, writing in The Independent, scientists led by the London-based Oil Depletion Analysis Centre, say that global oil production is set to peak in the next four years before entering a steepening decline which will have massive consequences for the world economy and the way that we live our lives.

He quotes Colin Campbell, the head of the depletion centre, as saying: "It's quite a simple theory and one that any beer drinker understands. The glass starts full and ends empty and the faster you drink it the quicker it's gone."

Oil price fears

Dr Campbell, a former chief geologist and vice-president at a string of oil majors, explains that the peak of regular oil - the cheap and easy to extract stuff - has already come and gone in 2005. Even when you factor in the more difficult to extract heavy oil, deep sea reserves, polar regions and liquid taken from gas, the peak will come as soon as 2011, he says.

This is denied by BP, whose chief economist Peter Davies says "We don't believe there is an absolute resource constraint. When peak oil comes, it is just as likely to come from consumption peaking, perhaps because of climate change policies as from production peaking."

But others warn that as the gap between demand and supply disappears, to be followed by a shortage, the price of oil could soar above $100 a barrel and lead to a global recession.

Howden quotes from Jeremy Leggett, geologist and author, who brought "peak oil" theory to a wider audience. He compares industry and government reluctance to face up to the impending end of oil, to climate change denial.

"It reminds me of the way no one would listen for years to scientists warning about global warming," he says. "We were predicting things pretty much exactly as they have played out. Then as now we were wondering what it would take to get people to listen."

Terminal decline

Howden's valuable analysis continues as follows:

One thing most oil analysts agree on is that depletion of oil fields follows a predictable bell curve. This has not changed since the Shell geologist M King Hubbert made a mathematical model in 1956 to predict what would happen to US petroleum production. The Hubbert Curve shows that at the beginning production from any oil field rises sharply, then reaches a plateau before falling into a terminal decline. His prediction that US production would peak in 1969 was ridiculed by those who claimed it could increase indefinitely. In the event it peaked in 1970 and has been in decline ever since.

Wind farm at sunset, Palm Springs, California. Photo: Warren Gretz/NREL
Wind farm at sunset, Palm Springs, California. Photo: Warren Gretz/NREL
Wind farm at sunset, Palm Springs, California© Warren Gretz/NREL
In the 1970s Chris Skrebowski was a long-term planner for BP. Today he edits the Petroleum Review and is one of a growing number of industry insiders converting to peak theory. "I was extremely sceptical to start with," he now admits. "We have enough capacity coming online for the next two-and-a-half years. After that the situation deteriorates."

What no one, not even BP, disagrees with is that demand is surging. The rapid growth of China and India matched with the developed world's dependence on oil, mean that a lot more oil will have to come from somewhere. BP's review shows that world demand for oil has grown faster in the past five years than in the second half of the 1990s. Today we consume an average of 85 million barrels daily. According to the most conservative estimates from the International Energy Agency that figure will rise to 113 million barrels by 2030.

Two-thirds of the world's oil reserves lie in the Middle East and increasing demand will have to be met with massive increases in supply from this region. BP's Statistical Review is the most widely used estimate of world oil reserves but as Dr Campbell points out it is only a summary of highly political estimates supplied by governments and oil companies.

As Dr Campbell explains: "When I was the boss of an oil company I would never tell the truth. It's not part of the game."

Biggest reserves

A survey of the four countries with the biggest reported reserves - Saudi Arabia, Iran, Iraq and Kuwait - reveals major concerns. In Kuwait last year, a journalist found documents suggesting the country's real reserves were half of what was reported. Iran this year became the first major oil producer to introduce oil rationing - an indication of the administration's view on which way oil reserves are going.

Sadad al-Huseini knows more about Saudi Arabia's oil reserves than perhaps anyone else. He retired as chief executive of the kingdom's oil corporation two years ago, and his view on how much Saudi production can be increased is sobering. "The problem is that you go from 79 million barrels a day in 2002 to 84.5 million in 2004. You're leaping by two to three million [barrels a day]" each year, he told The New York Times. "That's like a whole new Saudi Arabia every couple of years. It can't be done indefinitely."

The importance of Black Gold

A reduction of as little as 10 to 15 per cent could cripple oil-dependent industrial economies. In the 1970s, a reduction of just 5 per cent caused a price increase of more than 400 per cent.

Most farming equipment is either built in oil-powered plants or uses diesel as fuel. Nearly all pesticides and many fertilisers are made from oil.

Ethanol fuel pump
Ethanol fuel pump
Ethanol fuel pump.Photo: Energy Saving Now.
Most plastics, used in everything from computers and mobile phones to pipelines, clothing and carpets, are made from oil-based substances. Manufacturing requires huge amounts of fossil fuels. The construction of a single car in the US requires, on average, at least 20 barrels of oil.

Most renewable energy equipment requires large amounts of oil to produce. Metal production - particularly aluminum - cosmetics, hair dye, ink and many common painkillers all rely on oil.

Alternative Sources of Power

Coal

There are still an estimated 909 billion tonnes of proven coal reserves worldwide, enough to last at least 155 years. But coal is a fossil fuel and a dirty energy source that will only add to global warming.

Natural Gas

The natural gas fields in Siberia, Alaska and the Middle East should last 20 years longer than the world's oil reserves but, although cleaner than oil, natural gas is still a fossil fuel that emits pollutants. It is also expensive to extract and transport as it has to be liquefied.

Hydrogen Fuel Cells

Hydrogen fuel cells would provide us with a permanent, renewable, clean energy source as they combine hydrogen and oxygen chemically to produce electricity, water and heat. The difficulty, however, is that there isn't enough hydrogen to go round and the few clean ways of producing it are expensive.

Biofuels

Ethanol from corn and maize has become a popular alternative to oil. However, studies suggest ethanol production has a negative effect on energy investment and the environment because of the space required to grow what we need.

Renewable Energy

Oil-dependent nations are turning to renewable energy sources such as hydroelectric, solar and wind power to provide an alternative to oil but the likelihood of renewable sources providing enough energy is slim.

Nuclear

Fears of the world's uranium supply running out have been allayed by improved reactors and the possibility of using thorium as a nuclear fuel. But an increase in the number of reactors across the globe would increase the chance of a disaster and the risk of dangerous substances getting into the hands of terrorists.

Daniel Howden's article appeared in The Independent on June 14, 2007.