Project EVIE Blog

THE WORLD WILL FACE OIL SHORTAGES AND PRICE SPIKES BY AS SOON AS 2015, was the message that English entrepreneur Richard Branson gave to UK government officials and business leaders this week. ROCKETING ENERGY DEMAND BY INDUSTRIALIZING NATIONS, AND THE INABILITY TO SIGNIFICANTLY INCREASE PRODUCTION CAPACITIES, will be the major causes of this “oil crunch”.

These are the central conclusions of a major report funded by the UK Industry Taskforce of Peak Oil and Energy Security, a group of 6 companies headed by Sir Branson, billionnaire owner of the Virgin Group.

The 5 other companies on the Task Force – Arup, Foster + Partners, Scottish and Southern Energy, Solarcentury, and Stagecoach Group – do represent construction, design, engineering and utility interests that could stand to profit from investment in alternative energies, leading some to raise questions about the report’s motivations and objectivity.

However Branson’s involvement has lent the report more legitimacy, in my opinion. Branson’s rail, airline, and travel businesses are all immediately sensitive to oil price fluctuations. It is therefore in Branson’s best interests to know exactly when peak oil will occur, so that his Virgin-brand companies can plan accordingly. And the same can be said for Stagecoach Group, UK’s leading bus operator. There is no reason why these two companies would want to prematurely forecast peak oil when, if anything, it’s in their interests that oil last as long as and for as cheap as possible.

The debate over when – if ever – global oil consumption will outpace oil production, is a highly polarized one. Oil giants BP, ExxonMobil, and OPEC, have all insisted that peak oil is a myth – that newfound and unconventional oil reserves, as well as improved mining technology will keep production capacity on par with demand for many decades to come, and that oil demand will eventually decline before supplies do.

However some oil companies have broken ranks and come out with more anxious appraisals of peak oil. The CEO of Petrobas, Brazil’s state-owned oil company, warned last December that oil production would peak sometime in 2010. While Total’s CEO said production capacities will need to rise to over 100 million barrels/day within the next few years to meet growing demand, and that without major initiatives and investment, this will not happen.

By even the most cautious estimates, energy demand will rise by 45% in 2030 and will double by 2050. Current oil production is at 85 million barrels/day. According to the International Energy Agency (IEA), production capacity will reach 105 million barrels/day in 2030.

However the IEA’s figures, which the US and UK governments rely on for planning, came under criticism last year when an insider told the UK’s Guardian newspaper that they were intentionally innacurate, as a result of political pressure principally from the US, fearing the repercussions a looming peak oil deadline might have on its already-volatile stock market.

“The IEA in 2005 was predicting that oil supplies could rise as high as 120m barrels a day by 2030, although it was forced to reduce this gradually to 116m and then 105m last year,” said the IEA source. “The 120m figure always was nonsense but even today’s number is much higher than can be justified and the IEA knows this.”

A group of Swedish scientists reviewed the IEA’s World Energy Outlook in 2008 and in a peer-reviewed article argued that the IEA’s outlook was indeed “unnattainable”, and that production levels would be, at most, 75 million barrels/day in 2030.

While these criticims, and the Task Force’s report’s findings give further evidence for an impending peak oil crisis, the answer remains inconclusive. Researchers are inhibited by a lack of transparency of oil companies’ data, and there is uncertainty over the effectiveness and efficiency of tapping ‘unconventional’ oil reserves.

Thus we have Branson on the one hand, urging governments to “act” and not “let the oil crunch catch us out in the way that the credit crunch did”. While on the other we have interests such as Khalid al-Falih’s, CEO of Saudi Aramco, who posits that “The concern about peak oil is behind us”.

The question of when peak oil will occur, however, strikes me – a layman admittedly – as a scientific question that we should with some accuracy be able to study and answer. Yet a respect for, and belief in, objective scientific arguments, data and discourse is lacking in the current debate, as it is perceived that political and economic motivations determine facts, instead of facts shaping political and economic motivations. Until this intellectual laziness is overcome, the debate will continue to devolve around short-term interests.

I completely agree with your last paragraph. Definitely something we should be able to study and answer, and I’m sure someone can. But there are so many transparency issues not only with company data, but with national reserves themselves. I suspect scientists could come up with an answer, if they had all the data. I’m not holding my breath on them getting access to accurate data. I hate sounding like a conspiracy theorist, but I’d be less inclined to call it intellectual laziness and more inclined to think that the “powers that be” are playing a very lucrative, but high risk and dangerous game with our planet and our lives.

Comment by Jess @ Openly Balanced February 21, 2010 @ 2:40 pm

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Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to give some idea of the magnitude of the supply issues we face:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year
- Transition takes 30 years
- No peak in global production

In next 10 years we must find 44 million BOPD. If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%

If you want to try the model for yourself using your own assumptions it can be found at: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

Comment by posconvex July 4, 2010 @ 3:54 pm

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