Tuesday, April 6, 2010

Peak Oil Returns

The theory that easily obtained, relatively inexpensive oil is running out has made headlines once again, though not in the United States. Hubbert's Curve accurately predicted the end of oil autonomy in the United States in the 1970s and the theory has been used to predict the fading of the era of cheap oil. However the Peak Oil proposals have never gained much official attention. Until now, according to the website Seeking Alpha.

The early months of this year have seen some surprising changes of attitude across the Atlantic and in the Middle East. First to Kuwait where scientists at the University of Kuwait have been studying oil reserves and depletion rates. They suggest reserves are a third less than stated, around 900 billion barrels, and they have used what is known to statisticians (not me!) as a "multi-cycle Hubbert model" which predicts with greater accuracy they say, declining production rates of around 2 percent per annum. If that doesn't sound like much, combine declining production with increasing demand from India and China (who share one third of the world population between them) and price increases seem inevitable. This report, from the heart of oil production is the first acknowledgement from the Middle East that change is on the horizon- the due date on Hubbert's Curve is expected to show up around 2014.

Peak Oil has been a nerdy theory of diminishing returns supported by policy wonks outside the Establishment. The counter arguments have been simple enough, something like "more oil will always be discovered, technology will save us, alternatives already exist." The fact that we live in a world devoted to ignoring reality should have gone a long way toward giving these wonks credibility. The fact that they are ignored by power brokers in the US Establishment should have us all wondering about the expected impacts of Peak Oil. Instead it is the British Government that is taking measures, and in secret until recently.

The UK Task Force on Peak Oil and Energy Security met late last month with Government leaders in Britain and apparently drew up an agenda to deal with forthcoming oil shortages, expected within five years. Their conclusions were leaked and they make a scary list of problems.

As the UK's Guardian newspaper reported, the government intended to develop an action plan to contend with a near-term peak, and to "calm rising fears over peak oil."

Veteran peak oil analyst and task force member Jeremy Leggett explained: "Government has gone from the BP position — '40 years of supply left, the price mechanism works, no need to worry' — to 'crikey'." He urged the assembly to properly assess the risks of peak oil, and to immediately begin preparing for the end of globalization and an era of oil shortages in the West.

According to reports from attendees, the summit yielded some important conclusions:

Peak oil is either here, or close enough.
Prices will have to go higher as demand outstrips supply.
Governments will be forced to intervene to maintain critical levels of oil supply, and limit volatility.
Rationing measures may be unavoidable.
Electrification of transport must be pursued in order to reduce demand.
Communities will need to work quickly to reorganize around walking instead of driving, producing food and energy locally instead of importing, and generally try to reduce their need for oil.

As reported by Chris Nelder on the website Seeking Alpha.

This sort of action is currently unimaginable in the United States where the drive now is to reduce unemployment and restore the economy to where it was before the economic crisis reduced us all to paupers. And yet if you read the list of actions the British Government is considering as it works with leaders of industry to cope with the rigors of Peak Oil, don't they sound very much like the suggestions offered by the wonks in the world of blogging who have long since argued that changes need to be made to our way of life? Oh golly. What if they are right after all.


Orin said...

The deal with petroleum is the cost of finding it and pumping it out of the ground. An oil field that might not be worth developing at $40/bbl could be quite lucrative at $100. Yes, the low-hanging fruit has all been picked, but there might be quite a bit out there that could be pumped out and sold. At the right price, of course.

A few years ago, I recall reading a story about how a very large quantity of oil had been discovered off the coast of Brazil. Haven't heard much about it since...

Conchscooter said...

It's a long way down and going to be expensive to get out from under the ocean.

Orin said...

Which proves my point... expensive now, possibly lucrative at a higher price...