Future energy crises Peak oil

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For several years, a small group of ex-oil industry geologists has forecast an imminent peak and subsequent terminal decline in the global production of conventional oil (Bentley, 2002; Campbell, 2004). This peak is expected by some to cause massive economic dislocation, with alternative and non-conventional sources being unable, at least in the short term, to 'fill the gap' (Campbell, 2004; Deffeyes, 2005; Strahan, 2007). This issue, known as 'peak oil', would have serious implications for lifestyles in wealthy countries, compounding popular fears about wider dependence on fossil fuels associated with climate change.

Until recently, however, the growing public debate on peak oil has had relatively little influence on conventional policy discourse. For example, the possibility of such a peak was not even mentioned in the UK government's 2006 Energy Review (DTI, 2006c). International oil companies are frequently dismissive of the idea, while environmental non-government organisations (NGOs) appear reluctant to engage with it - perhaps through fear of being discredited if forecasts of an imminent peak prove incorrect.

This reluctance to engage with the issue may be driven in part by the experience of the 1972 'Limits to Growth' report (Meadows et al., 1972). This gave over-simplistic forecasts of imminent resource depletion that failed to take into account the potential for price-induced resource substitution and technical change. But the peak oil arguments may be more robust to such criticisms than some commentators suggest (Bentley, 2002) and the extent of physical depletion is much greater now than at the time of earlier energy shocks.

The objective assessment of oil depletion is severely handicapped by data limitations: reserve estimates are inherently uncertain, private companies hold much of the data and OPEC states may have incentives to distort the figures. Previous forecasts of the peaking of oil production have often proved pessimistic, and the methodologies used for such forecasts have a number of weaknesses. Nevertheless, with more than 60 countries past their resource-limited peak of production, and with annual consumption exceeding new discoveries for more than two decades, depletion is rapidly becoming an empirically observable phenomenon rather than a contested theory. A peak in the global production of conventional oil could possibly be delayed until 2030, but only under extremely optimistic assumptions about the amount of recoverable oil remaining (Kaufmann and Shiers, 2007).

Higher oil prices will undoubtedly encourage new discoveries and improve recovery from existing fields, but experience suggests that this could simply slow the rate of decline rather than delay the timing of the peak. Higher oil prices will also provide incentives for exploiting non-conventional oil resources such as oil shales and sands, converting coal and gas to liquid fuels and producing biofuels. While the resource base is large, the lead time for developing non-conventional resources is long, the anticipated rate of extraction slow, the net energy yield poor and the costs high. More importantly, in the absence of carbon sequestration, the development of such resources would greatly increase the likelihood of dangerous climate change.

A report for the US Department of Energy concluded that waiting until world oil production peaks before taking 'crash' action to reduce demand and develop alternatives would leave the world with a significant oil deficit for more than two decades (Hirsch et al., 2006). Hence, if a peaking of conventional oil supply is likely within the next 20 years, investment in demand reduction and supply alternatives needs to begin now. Failure to do so could lead to significant economic disruptions - although premature action could also prove costly if the peak is delayed (Hirsch et al., 2006).

The possibility of a near-term peak in conventional oil supplies should therefore be taken seriously. It implies the need for substantial investment in both demand reduction and the development of alternative fuels that are consistent with climate change objectives. The global context for the latter is discussed next.

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