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Politics

After Peak Oil

8 November 2007

After Peak Oil

By Gwynne Dyer

“Don’t Panic” is excellent advice in most times of crisis ( though not if you’re an investor, in which case the trick is to panic 48 hours before everybody else does). If the peak oil crisis is upon us, then not panicking is definitely the right response. It can be a quite gentle crisis if it is properly handled, but it will be a nightmare if governments and markets panic.

The current surge in the price of oil is certainly not driven by a conviction that oil supplies have peaked and can only decline from now on. The dealers in the London and New York exchanges who make the market react to the daily flow of news — a possible Turkish invasion of Iraqi Kurdistan, two North Sea rigs closed for a week because of bad weather — and don’t bother much about longer term issues like peak oil.

The market is a simple-minded beast: supply is tight and disruptions are possible, so the price goes up. But the market is so tight because demand has been growing faster than supply for years, mainly due to the economic boom in Asia — and now the fear is that supplies may have stopped growing altogether. The German-based Energy Watch Group declared last month that global oil output peaked in 2006 at 81 million barrels per day. It will fall to 58 million b/d by 2020, they predict, and to only 39 million b/d by 2030.

That would give us just over twenty years to cut our use of oil by half — or rather by two-thirds, really, since world demand for oil is set to increase 37 percent by 2030, according to the annual report of the US Energy Department’s forecasting arm, the Energy Information Administration. In theory, two decades ought to be enough to come up with more efficient engines and other conservation measures for the half of all oil that is used in transport, and to switch to alternative fuels for much of the rest. But there are many who doubt that we will succeed.

Once the realisation sinks in that the future is one of steadily diminishing oil supplies and steadily rising oil prices, they argue, there will be a vicious scramble for control of the remaining reserves, accompanied by wars that deplete those reserves even faster. The markets will panic, a deep and permanent global depression will impoverish everyone, and there will not be the will or the resources to build a new economy that is far less dependent on oil.

The most pessimistic of these Cassandras, like American writer James Howard Kunstler, predict nothing less than the wholesale collapse of industrial civilisation. In his 2005 best-seller “The Long Emergency,” Kunstler envisaged a future in which the survivors of the oil peak catastrophe eke out a living in an 18th-century-style economy: the great cities are abandoned, almost all production is for local consumption, and the higher technologies have mostly been lost.

Kunstler’s great hate is the suburbs, which are mainly an artefact of the cheap-oil era, and one gets the feeling that he would secretly welcome any catastrophe that destroyed them. You do not have to be a Cassandra, driving past the preposterously far-flung suburbs that have sprung up around North American cities in the past few decades, to see them as the neo-slums of the post-peak-oil future, but their demise does not necessarily imply the collapse of an entire civilisation.

There really is a finite amount of oil, and at some point production will peak and begin to decline. Is that time here? Perhaps. World oil production, which grew annually by an average of 1.2 million b/d over the past twenty years, has been almost flat for the past eighteen months despite the absence of any major disruptions.

If peak oil is here, must we all now go into the dark together? Of course not. The predicted rate of decline in world oil production once we are past the peak is only two percent a year. If demand were still rising by about two percent a year, that would imply a four percent shortfall in supply next year, an eight percent shortage the year after, twelve percent the year after that….

However, that presumes that Asian economies continue to grow at the present rate, but they won’t go on doing that if the oil price goes through the roof. So let us assume that we have to cope with an accumulating oil shortfall of around three percent a year. Could modern economies transform their basic transport and energy structures at three percent per annum?

Certainly they can, provided they continue to cooperate internationally and don’t panic. Moreover, the technologies they need to wean themselves from their excessive dependence on oil are precisely the ones they need to get their carbon emissions down and ward off the threat of runaway global warming.

If peak oil is here, we can deal with it. And if it isn’t here yet, we should still be acting as if it were. The sooner we start adapting our economies to a future in which oil is increasingly scarce and expensive, the less pain and risk we will face when it does arrive.

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To shorten to 725 words, omit paragraphs 6 and 7. (“The most…civilisation”)