THE world will have to find four Saudi Arabias by 2030 if it wants to maintain its oil dependency, the International Energy Agency says.
The reality of peak oil is fast approaching, and more must be done to develop and encourage the use of alternatives including solar and nuclear, the agency’s chief economist has warned.
“My main motto never changes, the era of low oil prices is over,” Dr Fatih Birol said.
That’s the verdict reported today in The Australian. [1] I thought I’d check to see what other sources had to say about Birol’s assertion, but I cannot find a single U.S.- based source reporting it, other than blogs that are dedicated to peak-oil [2] issues. This is rapidly becoming a crisis, and almost nobody is discussing it in America. Not just here, of course– study groups in Britain have been trying to get their government to begin planning for the reality of peak oil for years, and now they are saying it’s simply too late [3]. (see this also [4]).
[5]Peak-oil is increasingly recognized as fact- even US Government reports [6] acknowledge the difficulties that are presented by constrained production and increasing demand, even though they don’t come out and label it “peak-oil”. Despite spending billions of dollars in exploration last year, replacement rates are still falling [7]. Warnings about under-investment and a coming price spike have been near-constant since the start of the financial crisis last year.
The scale of the problem almost boggles the mind. Consider this [8]:
Global oil production stands at about 85million barrels per day. Saudi Arabia is the world’s largest producer: it pumped an estimated 9.4million barrels per day during October [2008].
…
He [Dr. Birhol] said that the challenge was particularly acute because, in addition to the replacement 45million daily barrels needed simply to stand still, an additional 20million would be needed to keep pace with surging demand, mainly from developing countries.
The Western world is utterly dependent upon oil for nearly everything. Peak oil has never been about oil running out, per sé, but rather that it will become increasingly scarce and therefore increasingly expensive. A number of analysts have even suggested that last year’s price spike may have been a contributing factor to the start of the financial crisis [9].
In every case when oil consumption breeched [sic] 4% of GDP, the US has suffered a recession, and indeed, the current US recession began within two months of oil hitting the 4% threshold, that is, when oil reached $80 / barrel.
Are oil price levels the critical factor, or do rapid prices increases – price volatility – also matter? As it turns out, recessions also correlate well with sustained oil price increases. Whenever oil prices have increased by more than 50% year-on-year (trailing 12 month average divided by the previous 12 month average), a recession has followed shortly. Curiously, oil prices doubled in the year preceding the technology-led recession of 2001, a recession not
ordinarily associated with an oil prices shock, and a recession in which oil consumption did not reach 4% of GDP, suggesting oil may have be implicated here as well. On the other hand, the 1991 recession associated with the first Gulf War did not result in a sustained price increase. But prices did, in fact, double for a period of about four months – not enough to cause a 50% annual increase, but enough to cause a recession. While the case for volatility remains somewhat circumstantial, in general, a sustained rise in the oil price of 50% or more has always been associated with recession, and this applies to the current recession as well.
Cynically, one might even argue that much of our foreign policy is dictated by our need to influence (if not control) energy resources in the coming decades. Iraq has the world’s second largest proven reserves [10]. Iran is a key part of the proposed Nabucco pipeline [11]. So is Georgia (remember last year’s brief war between Russia and Georgia? [12]). Guess where else? If you said “Afghanistan [13]“, you get a cookie. There’s a fairly extensive compilation of oil-related conflicts around the world [14] available from the Global Policy Forum.
China certainly realizes the value of controlling energy supplies, and they have been rapidly expanding their oil infrastructure [15] as well as locking up agreements with other oil-producing countries. Their enormous capital reserves (courtesy of the American consumer) have afforded them wide latitude in paying (current) top-dollar prices for these assets, which will only become more valuable as the reality of peak oil sets in and as the value of U.S. debt declines. For enlightening reading on the subject, see here [16], here [17], here [18], and here [19]). While some here in America dispute the reality of peak oil, it’s worth noting that governments around the world are spending trillions of dollars to lock up access to energy supplies– in other words, they are acting as if they believe peak oil theory to be true, and imminent. There is no longer any time to create viable alternatives, so access to existing supplies is crucial.
Given that we are experiencing the very consequences warned about by peak oil theorists, it behooves us to begin planning immediately for coming scenarios. And I don’t just mean this at the national level, individuals and families must begin to plan for a world with much more expensive energy, and all the consequences that entails. That is, unless you trust the same government who failed to anticipate the consequences of Hurricane Katrina (or of the dot-com bubble, or of the derivatives bubble, or the real-estate bubble…) to suddenly have all the answers.
For a somewhat dated but still quite good introduction to Peak oil theory, check here [20]. Wikipedia also has a very good page [2] on the subject.
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