This talk was given on July 4th at an event organised by Winchester Action on Climate Change (WinACC). The views in the talk are my own; they should not be interpreted as the official view of WinACC.
Download the Powerpoint presentation (1.1 MB). The slides from this presentation are reproduced below.
Global Peak oil can be defined as the irreversible peaking and start of a continued decline in the rate of global production of oil as a consequence of the depletion of this finite resource. Peak oil corresponds to the point at which roughly half the oil reserves remain.
As I perceive it Climate change and Peak Oil are the two most serious threats to biodiversity, human life, and civilisation as we know it. The main purpose of this talk is to consider three possible visions or scenarios concerning Peak Oil and Climate Change.
The first, which I’ve called “ Green Future”, is that for which WinACC and FEASTA and hundreds and thousands of other action groups across the world hope, pray, and struggle. In this vision increased knowledge and awareness of Climate Change and Peak Oil ushers in a new age of steady state economics, involving huge growth in renewable energy, energy conservation and energy efficiency combined with reduced materials use and institutional and personal change. In this vision human beings live more fulfilled, happier, simpler, safer and healthier lives within the ecological limits of the planet and thus in harmony with the world’s rich and diverse flora and fauna.
However we are haunted by two dark visions of the future. I’ve called the first, which is apparently favoured by the hugely powerful energy corporations, “Runaway climate change”. In this scenario, the problem of Peak fossil fuels is postponed but not solved by the unmitigated burning of substantially all of the estimated 12 trillion tonnes of carbon remaining in the estimated fossil fuel reserves. 12 trillion tonnes is 20x greater than the 0.6 trillion tonnes of carbon already deposited as CO2 in the atmosphere since the start of the industrial revolution and already causing serious warming. The 12 trillion tonnes has been estimated to be enough to raise the mean global temperature by 12 to 24 degree C which would be absolutely catastrophic, rendering the planet uninhabitable by human beings and other mammals. To prevent this from happening the latest science requires some 95% of fossil fuel reserves to remain in the ground and greenhouse gas emissions to start to fall now.
In the second dark vision, “Peak oil catastrophe”, which is considered to be possible by many ecological economists and some energy analysts, very high and perhaps wildly fluctuating oil prices caused by Peak Oil will lead to severe depression, and eventual terminal collapse of the global economy already severely weakened by debt. In the view of the Peak Oil catastrophists this will greatly increase inequality and tip many into abject poverty resulting in societal disintegration, and bloody revolution. It will lead to armagedon as countries resort yet again to war to protect their supply of oil as global reserves dwindle. “Peak Oil catastrophists” additionally forecast eventual collapse of the world population as this has been artificially inflated well above the carrying capacity of the planet by the use of oil and other fossil fuels.
They consider Peak oil to be so threatening because the world economy is so dependent on oil, particularly for all forms of transport and for much of agriculture and fishing. Indeed agriculture has been described as using land to turn oil into food. Of course, oil is used not just for transport and food but in the production of all goods and services.
Peak oil catastrophists do not deny the importance of other peaks resulting from the depletion of gas, coal, water, phosphates for fertilizers, uranium, copper and the rare earth metals.
The diagram above was an attempt I made a year ago to summarise four possible futures. I now think that the “the global planned transition to nuclear power” scenario is unlikely no matter how desirable some may think it. This is because nuclear power is not zero-carbon, making it necessary for thousands of reactors to be built on a world scale to substitute for fossil fuels and make an appreciable difference to climate change. It takes a long time for a reactor to recoup the huge cash and energy input , and CO2 emissions incurred in reactor construction.
This means that reactors cannot be built fast enough on a world scale to cut CO2 emissions at the rate dictated by the latest climate science. Moreover, even if it made sense to temporarily boost CO2 emissions and drastically reduce the supply of energy to the rest of the global economy to allow huge number of reactors to be built, peak uranium means that there would be insufficient high grade uranium ores to run them. It is too late to switch to the more abundant supplies of thorium. Fast neutron reactors that slowly breed their own plutonium fuel are also not the answer. No nation has so far constructed a plant that if scaled-up could economically reprocess the three different types of spent nuclear fuel fast enough for a rapidly expanding fast breeder program. Of course some would argue that a modest nuclear power programme could be combined with renewables in the Green Future scenario, but do we enough time, cash or oil left to do both and shouldn’t we transition directly to the renewable sources that the world will sooner or later have to rely on?
This talk mainly focuses on peak oil because most people know less about it than climate change. For summaries of the empirical evidence that Climate Change is man-made, continuing and very serious take a look at the WinACC website or I can come back and give you another session on it!
The thesis which underlies my present talk is that economic growth up to the present date has been literally fuelled by the fossil fuels coal, oil and natural gas. However 40 years on from the Club of Rome’s seminal report, “The limits to growth”, we are now at or beyond these limits and sustained economic growth is no longer possible or even desirable.
In this talk I seek to answer 4 questions:
1. What is Peak Oil?
2. When will it happen?
3. What might its impact be?
4. What needs to be done to seek a joint solution to climate change, eventual peak oil, and the debt crisis?
We first need to distinguish between conventional oil and unconventional oil as conventional oil production may have already peaked while that of unconventional oil is likely to occur some distance in the future.
Conventional oil is obtained simply by pumping it out of a well with or without the use of water and/or chemicals and other advanced techniques to enhance its recovery. In contrast unconventional oil is obtained in unconventional ways, for example by open cast mining or using steam or fire underground or horizontal drilling and fracking to get it to the surface. There are six sorts of Unconventional oil: 1. shale oil; 2. oil sands ; 3. “heavy oil”, a very viscous oil similar to bitumen; 4. oil condensed out from gases emerging from oil and gas wells; 5. oil produced synthetically from coal or natural gas; and 6. Liquid biofuels including palm oil, rape oil and bioethanol.
Global Peak oil can refer to peak conventional oil or to peak total oil. The latter is a combination of conventional and unconventional oil.
We can only be sure with hindsight some considerable time after the event that conventional or total oil production has irreversible peaked. This is because several additional factors other than depletion can cause a temporary reduction in the oil production rate. These include:
1. Internal revolution (e.g. Libya) or war ( Yom Kipur and the second Iraq war).
2. Economic downturn. This reduces demand leading to price reduction and thence lack of investment in oil discovery and exploitation.
3. Politics. Political decisions to reduce production can be taken for two reasons: to increase price (OPEC price war), or to optimise long term profit by keeping oil in the ground in anticipation of an upturn in oil prices.
These factors not only make it difficult to be sure for some time whether the peak has passed but compound the difficulty of predicting when it will in the future if it hasn’t done so already. Prediction is made more difficult by two additional factors.
1. Overestimation of reserves. It has been politically and economically expedient for countries and oil companies to overstate the size of their reserves. For example Saudia Arabia overstated its reserves by as much as 40% as revealed by WikiLeaks[i].There is good evidence that overhype is widespread and extends to both conventional and unconventional oil.
2. There are considerable uncertainties about how economic, geology, and new extractive technologies will affect future production rates.
Despite these uncertainties a sizeable number of academics and ecological economists consider the conventional oil production is at best on a somewhat fluctuating plateau; and that global peak total oil may be just around the corner. Protagonists of this view cite the following evidence.
3. Global production looks as if it is on a somewhat fluctuating plateau. The world is currently using oil four times faster than it is discovering it. Anyone spending an income 4x faster than they earn it will eventually understand the consequences of this!
5. To date Brent Crude, the yardstick for oil prices has been above $85 since November 2010 and above $90 since December the same year smashing the price duration record. Protagonists argue that this indicates that supply continues to be seriously constrained by resource depletion despite demand reduction resulting from the slowing down of the global economy. We’ll discuss the possible effects of a sustained price over $85 later so please remember that Brent has been above this price since November 2010.
6. Oil production showed only a small increase during the oil price hikes from 2004 to the credit crunch and during the recovery that followed. This, protagonists argue, suggests that extremely strong price signals fail to increase the production rate and this may indicate that production is limited by depletion.
7. Further to this, the plot of global production against price shows that prior to 2004/2005 modest increases in oil price triggered a marked increase in production. Thereafter production only responded slightly in response to a large increase in price. This has been taken as predicting that production will hit a ceiling not much above 90 million barrels a day and that high prices are likely to continue (with some fluctuation ) unless the world economy collapses.
Has conventional oil peaked? Remarkably the IEA in December 2010, after denying for many years that that peak conventional oil was anywhere near, suddenly decided that it had already happened in 2008.
“Not to worry”, their report said, “oil from fields yet to be developed and yet to be discovered, together with unconventional oil (principally from tar sands) will compensate for the decline in conventional oil post peak.” All this looks too good to be true and it may or may not be. Three respected analysts: Richard Miller of the Oil Depletion Analysis Centre; Prof Kjell Aleklett of Global Energy Systems Research, Uppsala University; and Steve Sorrell et al. of UKERC independently pointed out very serious flaws in the IEA’s supply forecasting methodology for conventional oil.
Moreover, By March 2011 the IEA’s chief economist had gone way beyond what the IEA wrote in December 2010. He now concluded that
“The existing fields are declining so sharply that in order to stay where we are in terms of production levels in the next 25 years, we have to find and develop four new Saudi Arabias. It is a huge, huge challenge .… the age of cheap oil is over”
To summarise the argument so far it is quite possible that Peak conventional oil has happened or is imminent but there is still considerable uncertainty about the timing of Peak total oil. To bring you bang up to date on this, George Monbiot in yesterday’s Guardian (3rd of July 2012) drew attention to a recent report by the oil executive Leonardo Maugeri. In this Maugeri claimed that persistent low oil prices before and immediately after the 2006 recession has depressed production and that investment in both conventional and unconventional oil has now started to increase in response to the sustained high oil price since November 2010. Maugeri predicts that this will increase production of both conventional oil, particularly in Iraq, and of unconventional oil particularly from Shale oil in the US. He thinks that increases will take global total oil production from the current 93 to 110 million barrels a day by 2020, claiming that sustained increase in production will push Global Peak total oil far into the future. I completely agree with Monbiot that as we have argued, this is extremely bad news for the climate if it isn’t just oil industry hype.
It seems likely that Maugeri may be wrong. Economics and geology often conspire to make predictions of economically recoverable oil spectacularly over-optimistic.
Moreover, Maugeri claims that shale oil in the US could amount to the oil production of 1 Saudi Arabia but this falls far short of the 4 Saudi Arabias that the IEA think are needed or the “one Saudi Arabia every 3 years” for the next 20 years calculated by Steve Sorrel to be required just to keep pace with the current level of global demand.
Also Maugeri fails to consider that an analysis of 23 independent estimates showed that only 4.6 barrels of shale oil on average were produced from the investment of energy equivalent to one barrel of oil. This 4.6 barrels is far beneath the 15 barrels thought to be necessary for a main energy source to be able to satisfy the energy requirement of an advanced society.
Even if Maugeri is right that Peak total oil will be greatly delayed, oil is a finite resort and must eventually peak. When it does it may be as bad as the worst fears of the Peak Oil catastrophists.
Peak total oil presents a potentially very serious supply problem. We can learn something about this from what happened in the run up to the credit crunch. A combination of increasing demand without a parallel increase in supply together with speculation greatly increased oil prices, forcing net oil importing countries to pay more for the oil than they could afford. In June 2008 Brent Crude peaked at $150 a barrel. This is an all-time record even when allowance is made for inflation. These sustained high oil prices are believed by many economists to have been a major or contributory cause of the credit crunch. Easy credit had lead to a consumer spending and housing boom as deregulated banks and building societies simply generated huge quantities of electronic money, unbacked by tangible reserves, as loans to house buyers and companies. Many of these loans were defaulted on as high oil prices sharply increased the cost of living and of the manufacturing and service sector leaving home owners and companies with insufficient funds for mortgage repayments and interest on loans. This massive wave of default triggered the near terminal collapse of the banking house of cards. The ensuing recession reduced oil demand leading to a precipitous fall in oil prices.
This rapid rise in oil prices is known as an oil shock and the subsequent fall in price turns it into an oil spike. Oil shocks are very bad news for the economies of net oil importing nations and indeed for the global economy as a whole. In support of this view the economist Prof James D Hamilton of the University of California pointed out that 10 out of 11 of the last US recessions (now 11 out of 12) have been preceded by a sharp rise in oil prices. This has lead to attempts to estimate what oil price advanced oil dependent economies can stand without serious economic damage. The answer seems to be that the threshold for serious damage is about 85 dollars for the US, while European economies are thought to have similar sensitivities. Thus there is little doubt that expensive oil from late 2010 to date is a major cause of the current world economic slow down and European recessions.
So what do the experts think will happen to oil prices in the next few years? This slide shows forecasts with different time horizons collected together in 2011.
Of course these will need to be revised downwards in the unlikely event that Maugeri turns out to be right about oil supply being able to outpace demand. Most of the collected forecasts show oil prices equal to or greater than $100 while some are in excess of $200. Some recent forecasts actually put oil as high as $400. These prices are well above the inflation-adjusted $85 dollar threshold for economic damage. Moreover many predict that prices may yo-yo to much lower levels as high prices cause recession and a consequent fall in demand.
High oil prices don’t only have an adverse effect on economies by pushing up the cost of all goods and services and materials used by industry. They also have an important effect on the balance of payments between net oil importing and oil exporting companies. The net importers’ economies forfeit huge quantities of income from their economies to pay for large imports of oil at high prices. The income they receive in return, for example from the sale of weapons to middle eastern oil rich countries comes does not come close to balancing the books. This is known as the scarcity rent problem and contributes greatly to the problem of national debt. Investment of oil rich countries in the London Stock market does not solve this problem. Economic decline seems inevitable unless the scarcity rent problem is solved.
What does this mean for the future? We are currently in W shaped recession. WWW- or even L-shaped recessions have been predicted though my impression is that no-one really knows what will happen or when; the outlook for the global economy can at best be described as highly uncertain.
In summary this is what Bob Hirsch had to say about the possible negative impacts of Peak Oil on the economy. He was the lead author of a US Department of Energy report on peak oil in 2005. After publication, all funding for research on this in the US DoE stopped and Hirsch was told never to talk about the report. This is what he has said recently.
So here is my wish list of what needs to be done to prevent runaway climate change or Peak Oil catastrophe.
Introduce Cap and Share.
Progressively cap fossil fuel use at point of entry to the economy (rather than CO2 emissions at multiple exit points). Controlled to give stable, high fossil fuel prices.
Energy input permits to be given to all adults.
Setting up an Exchange to sell these to energy importers or producers thus sharing scarcity rent with adult population and partially compensating for rising prices.
Tax on permit purchase provides funds for mitigation and adaptation etc.
Legislation and fiscal policy to:
- Stop fossil fuel subsidies
- Introduce Cap and Share to cap fossil fuel use and share some of the scarcity rent with the general population.
- discourage the second dash for gas
- decarbonise electricity production
- Pursue growth of the green sector by stimulating investment in renewables & energy efficiency / conservation
- reduce material use in construction, manufacture , packing etc.
- Redistribute wealth to mitigate against social unrest.
- Set tighter carbon budgets.
- Require LA’s to set and publish GHG emission budgets and descent plans and report on compliance with these.
- Tackle non CO2 GHG emissions.
- Protect and improve carbon sinks (woodland and pasture etc.)
- Facilitate transition to a steady state economy operating within ecological limits.
- Encourage decentralisation and local resilience
- More equitable sharing of wealth and resources
- Adaptation to lower incomes
- pursuit of wellbeing and prospering in place of GDP
- Development of renewables
(we also need a steady-state economy and global conflict resolution)
- Raise awareness
- Act together
- Work for change locally and nationally
- Walk the talk
And here’s the final summary:
In the runaway climate change scenario, peak oil and economic decline is delayed by burning substantially all oil, gas and coal reserves without CCS, global mean temperatures could increase by as much as 15°C. The likely consequences are horrendous.
The Peak Oil catastrophe scenario could limit climate change by precipitating chaotic irreversible economic collapse. If this happened quickly and drastically it would be beneficial for biodiversity but could be unspeakably dreadful for civilisation. Controlled economic descent is needed instead.
The Green Future scenario involving rapid transition to a near zero carbon economy is infinitely preferable to either of the other two and may just be achievable if a sufficient fraction of the world’s population works for it.
Thank you for asking me and thank you for listening.