First Published: 2010-11-15

 

The End of Cheap Oil

 

'Peak oil' hit in 2006. The 'post-peak' world clearly does not imply the End of the World. But it does imply an extremely volatile one, whose dynamics will be difficult to predict, says Nafeez Mosaddeq Ahmed.

 

Middle East Online

The implications of the International Energy Agency’s (IEA) new report, World Energy Outlook 2010, are stark. Its 25-year “New Policies Scenario” projects that it is most probable that conventional crude oil production “never regains its all-time peak of 70 million barrels per day reached in 2006.” In this scenario, crude oil production is most likely to stay on a plateau of around 68-69 million barrels per day.

So there you have it. We are now, in all likelihood, living in a “post-peak” world.

The IEA blames a number of factors for this: a combination of supply constraints due to below-ground geological resource limits; above-ground factors such as political obstacles to fully exploiting existing reserves (such as in Iraq); and, international commitments to reducing fossil fuel emissions to meet climate targets.

So is this the end of industrial civilization as we know it? The IEA insists: not yet. Despite the peak of conventional oil production, the IEA concludes that total growth in liquid fuels from other unconventional sources -- such as tar sands, oil shale and natural gas liquids -- will not only make up for the shortfall in crude, but actually rise as high as around 99 million barrels per day (mbd) until around 2035. Despite this apparent optimism -- by this scenario, there are no imminent fuel shortages -- we have passed a historic tipping point. In the words of IEA chief economist Fatih Birol, “the age of cheap oil is over.”

The problem is that unconventional sources of oil and gas are far more expensive to get out of the ground and process into usable petroleum -- and environmentally problematic. This means that over the next decade, oil prices are likely to become more expensive. Driven largely by industrial growth in places like China and India, demand is projected to grow by 36 per cent up to 2035 -- at which point, the price of oil will rise beyond $200 a barrel. On the way, by around 2015, we could see price hikes above $100 a barrel.

Unfortunately, a large body of independent scientific literature suggests that the IEA’s favored scenario is far too optimistic, on a whole range of issues. The agency forecasts, for instance, that Iraq will be able to triple its production by 2035, and that Saudi Arabia’s production will double. Yet this looks rather unlikely. IHS Cambridge Energy Research Associates (CERA), a leading energy consultancy firm vehemently opposed to the idea of peak oil, nevertheless project that the most we can hope is for Iraq to increase its output to 6.5 mbd by 2020 – half of Iraq’s actual target.

As for Saudi Arabia, the late energy investment analyst Matthew Simmons concluded in his extensive book, Twilight in the Desert (2005) that the Saudi oil fields are largely in decline. “Today, the entire field still contains a great deal of crude oil,” reports US energy consultant Michael Lynch of Gerson Lehrman Group, referring to the Saudis’ most prized field, Ghawar, responsible for six per cent of the world’s oil supplies. “But it is much harder to get and the production rates continue to fall off.” He characterizes Ghawar as “largely depleted.” The IEA’s hopes that unconventional oil and gas could rise rapidly to meet expected demand may also be misplaced. “If conventional oil production is at peak production then projected unconventional oil production cannot mitigate peaking of conventional oil alone,” concluded a study by University of Newcastle chemical engineer, Steve Mohr, published in Energy Policy. A Boston University study, concurred, finding that the Energy Return On Investment (EROI) -- the energy you get out compared to what you put in -- is simply infinitesimal, at around 1:1 or 2:1, compared to conventional oil’s EROI at the well head of 20:1.

What about unconventional gas? Although EROI is quite high at inception, the EROI of all gas production rapidly declines as energy costs of compression and distribution to consumers is factored in. An extensive analysis by former Amoco petroleum geologist and World Oil columnist Arthur Berman, who has consulted for ExxonMobil and Total, fundamentally undermines industry forecasts for natural gas production based on shale gas inputs. He argues that actual shale gas production rates are less than half of official industry projections -- this is because production decline rates at shale wells are far higher than assumed. “Many believe that the high initial rates and cumulative production of shale plays prove their success,” says Berman. “What they miss is that production decline rates are so high that, without continuous drilling, overall production would plummet. There is no doubt that the shale gas resource is very large. The concern is that much of it is non-commercial even at price levels that are considerably higher than they are today.”

If the IEA is right about everything, we are in for a rough ride. But if, as the above suggests, the IEA is right about us passing the peak of conventional oil in 2006, but almost fanatical in its faith in the prospects for expanded production from unconventional sources, then we are in for an even rougher ride.

The “post-peak” world clearly does not imply the End of the World. But it does imply an extremely volatile one, whose dynamics will be difficult to predict. It is a world not of easy abundance, but of declining -- and increasingly expensive -- carbon-based resources. If we are to develop sufficient resilience to the various price shocks and converging crises of the “post-peak” world, we will need to recognize that they are symptomatic of an inevitable civilizational transition toward an emerging post-carbon age. There is no time for denial. Governments and communities need to start adapting now.

Nafeez Mosaddeq Ahmed is executive director of the Institute for Policy Research & Development. His latest book is A User’s Guide to the Crisis of Civilization: And How to Save It, Pluto, 2010.

Copyright © 2010 Le Monde diplomatique -- distributed by Agence Global

 

Moscow seeks to boost its influence in Kurdistan through oil

Tillerson does not expect Gulf crisis to be resolved soon

35 Egyptian police killed in Islamist ambush

How Raqa recapture affects complex Syrian war

Ancient Turkish town set to vanish forever under floodwaters

Ceremony marks 75 years since WWII Battle of El Alamein

Somalia attack death toll rises to 358

Long road ahead for families of jailed Morocco protesters

Israel hits Syrian artillery after Golan fire

Germany advances Israel submarine deal after corruption holdup

Bashir Gemayel's killer convicted, 35 years later

SDF hails 'historic victory' against IS in Raqa

Hamas delegation visits Iran

Turkish court orders release of teacher on hunger strike

Yemen rebel youth minister urges children to join war

Iran's Guards show no intention of curbing activities in Mideast

EU will cut some money for Turkey as ties sour

Iraqi workers return to oil fields retaken from Kurds

Kurdish disarray shows resurgence of Iraq's army

Iranian military chief visits frontline near Syria's Aleppo

Iraq army takes last Kurd-held area of Kirkuk province

Turkey issues arrest warrants for 110 people over Gulen links

Lebanon approves first budget since 2005

Hamas calls US unity comments ‘blatant interference’

OPEC chief pleased with oil market rebalancing

Turkish police detain leading civil society figure

G7, tech giants meet to tackle terror online

Iraq’s Kurdish regional government open to Baghdad talks

Tensions flare among Yemen's rebels

Baghdad court issues arrest warrant for Iraqi Kurd VP

Erdogan, Nigerian counterpart to ramp up cooperation

Russian medics operate on Yemen's Saleh despite embargo

Baghdad condemns oil deal between Russia’s Rosneft, Kurds

Power shifts again in Iraq's multi-ethnic Kirkuk

Syrian general accused of journalist deaths killed in Deir Ezzor

Raqa liberators ready for civilian handover, on to next battle

Revolutionary Guards say Iranian missile program will continue

Erdogan calls on three major mayors to resign

ICC investigating several war crimes in Mali

Erdogan says may shut Iraqi border at any moment

Tunisian couple jailed for 'public indecency' over car kiss

Next round of Syria talks at end October

Gazans hope Palestinian reconciliation ends their woes

PSG's Khelaifi to be quizzed in Swiss World Cup probe

UN urges de-escalation in Iraq