Oil: eyes tight shut

Citation

Fleming, D. (2001), "Oil: eyes tight shut", European Business Review, Vol. 13 No. 1. https://doi.org/10.1108/ebr.2001.05413aab.012

Oil: eyes tight shut

Oil: eyes tight shut

David FlemingDavid Fleming is Environmental Researcher, Independent (ex-Ecology Party), London. His book, The Lean Economy, is forthcoming in 2001.

Keywords Oil, Oil industry

The era of cheap and reliable supplies of oil is now coming to an end. There have been repeated warnings about this for the last half century. They have all been ignored. The result of this serial denial will be that, when oil production falters, nothing will have been done to prevent oil-famine bringing economies all over the world to their knees.

Had the warnings been believed, then it would have been possible to spend the last 50 years building an economy based on renewable energy and conservation systems; if that had happened, we would now be contemplating a smooth transition into the post-oil economy, industrial economies' emissions of greenhouse gases would be minimal; we would now be enjoying the benefits of clean air and minimal traffic congestion, and the energy-efficient technologies would be a major opportunity for wealth-creation and international trade. As it is, however, we are facing an energy crisis whose consequences for economies, society and indeed food security will be appalling.

Although it was recognised from the earliest days of oil that this was an exceptional resource which would not last indefinitely, the warnings only began in earnest in the 1950s. The geologist King Hubbert demonstrated the competence of the science by being able to forecast the peak in USA's oil production 15 years later in 1970. His method was quickly taken up and applied globally, producing a series of consistent forecasts that global production would begin to turn down around 2000, starting its long decline towards exhaustion.

The disbelief with which these consistent forecasts were greeted established a long and unbroken tradition of official denial.

A vintage instance of this denial occurred when, in 1976, the UK's Department of Energy actually warned itself of the problem – only to ignore its own warning: it produced a report forecasting that the North Sea production would peak around the end of the century, which would be about the same time as the peak in world oil production; it urged that action to develop renewables should start straight away – and the department then promptly forgot about it[1].

Six years later, the US government did precisely the same thing: The Global 2000 Report to the President, commissioned by President Carter and published in 1982, showed that, if there were no constraint in demand, the peak would occur in the 1990s, but this would be slightly postponed if (as happened) there were to be any attempt to enforce higher prices. It recommended action:

Convenient, easily transported, relatively clean-burning petroleum and natural gas resources are being depleted. As these resources become increasingly scarce, a transition to other forms of energy must be made[2].

Nothing happened. Research into renewables and conservation continued at a leisurely pace, but co-ordinated development of the successor technologies to oil and gas was never seriously contemplated. Since then, the warnings have continued to flow. Through the 1980s and 1990s, independent analysts such as Buzz Ivanhoe, Jean Laherrère and Colin Campbell have shown that world oil production could not, in practice, be expected to continue to rise significantly after the turn of the century[3-7], and in 1998, the International Energy Agency's World Energy Outlook bore this out[8]. These warnings were brought to the attention of our own department of energy (now subsumed by the Department of Trade and Industry) notably by Roger Bentley of the University of Reading, and by several other analysts throughout the period and up to the present. They have been ignored.

Large organisations whose central beliefs are challenged tend to regard warnings as not only false but immoral. The oil companies, who are well placed to understand the situation are, in fact, captured by faith in their technology. This is a phenomenon that has become familiar in the case of large companies that can see no evil in their products or in anything in their philosophy, and the oil companies, true to this tradition, have provided a steady stream of reassurance to the government. The government, likewise, is captured by narcissistic complacency; big oil symbiotically feeds reassurance and comfort into big government.

Where the oil companies leave off, sloppy thinking takes over. The US Geological Survey (USGS) has recently produced a long and detailed study of the world's remaining oil reserves. In the cautious tradition of statistical studies, they have derived three estimates – the most probable (95 percent), the extremely unlikely (5 percent) and an intermediate estimate. It is possible – if you approach the matter without thinking, wandering off well beyond the most probable estimates – to misinterpret this as official confirmation that the turn-down towards depletion is remote indeed (of the order of 25 years away) and, relying on sources well insulated from any contamination by peer review, the UK government finds itself so reassured that it does not think it necessary even to commission an independent study to evaluate it.

Instead, the government, as explained to me in a letter from the Department of Trade and Industry in October, thinks that it does not need to do more than ensure that its officials continue "their regular work of keeping abreast of the full range of opinions on future oil stocks and market developments." The suggestion that the department should think, and that it should provide itself with some properly-interpreted evidence to think about, is not considered to be a serious option. Perhaps the workload would be too great, and attention is too distracted, given that the Energy Minister, Mrs Helen Liddell, has to double-up as Minister for Competitiveness in Europe.

Meanwhile, deep in the sedimentary basins of the world's oil fields, oil continues to flow – but more slowly and less reliably than it once did. The UK's North Sea oil is at its peak, and is about to go into decline; and the best days of production are over for the giant fields in Alaska, the former Soviet Union, Mexico, Venezuela and Norway.

The USA's own oil production has been declining since 1970 and now accounts for less than half its needs. The only producers who still possess an oil resource which may be capable of keeping oil flowing into the world market at a roughly constant level are the Middle East OPEC – Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates. And even with these countries, it seems, the closer you look at the detail, the less they have to offer.

Much of Saudi Arabia's reserves of oil are held in one huge field, the Ghawar. It has been pumped continually since 1948 and not surprisingly, it is showing signs of exhaustion, with its southern end now flooding with water. Saudi Arabia can keep its production roughly constant for between seven and ten years before it, too, has used up half its total oil resource and rolls over towards depletion. Then it will turn to smaller fields, producing smaller amounts, slowly.

Iran was once one of the young giants of the world oil business, but it could not now sustain a higher output for long, and there are suspicions that some of the production credited to Iran recently has actually consisted of oil piped over the border from Iraq. Kuwait and one of the Emirates, Abu Dhabi, could increase production and may well do so, but development would take several years, and their reserves are small relative to the world's demand for oil. The country with potential for a serious increase in output, on a scale that could make a difference, is Iraq.

Unlike every other region with major oil potential, Iraq's oil geology is not fully explored, but there are some well-informed guesses. One estimate is that there are 110 billion barrels there, equal to more than three UK North Seas, or more than one third of the total resource once possessed by Saudi Arabia – enough to keep world oil production rising for a few more years. It lies, however, in a country which is armed to the teeth, consumed by loathing of the West, and just waiting for the threat of armed intervention from the USA to make its day. Iraq was prevented from selling off its oil during the 1990s, when prices were lower than they will ever be again; it will soon be well placed to apply its own sanctions to the rest of the world by fine-tuning its oil production and naming its price.

And then we shall have to adapt to the post-oil economy – which, in Europe, will become the post-gas economy, too, in around 20 years, and much sooner than that in the case of the USA. The snag is that the best estimate for the time it will take to build the systems needed for renewable energy, according a recent report published in Germany, is some 50 years, and even that would provide us with only 35 percent of the energy we use now – which might be enough if a comprehensive programme of energy conservation were taken forward at the same time[9]. Just possibly, if the job were given overwhelming priority, it might be possible to compress it into 25 years, so this is the time scale which must be regarded as the absolute minimum it would take to make the transition to the post-oil without turmoil and turbulence on an unacceptable scale.

It follows that, should serious disturbances in the supply and/or price of oil occur in less than 25 years time, we will be confronted with an energy gap for which the economy is utterly unprepared. That, in turn, means that any official reassurance that abundant, cheap oil supplies can be expected to continue undisturbed for another five years, or 15 years – or indeed any period less than the minimum 25 years it will take to develop solutions – is strictly irrelevant to the problem and, indeed, nothing short of reckless.

The situation at present, then, can be summarised in the following three points. First, the government does not have a clue how long we have before the oil crunch hits, even though its filing cabinets contain an archive of unread papers showing that a decline in oil production is imminent.

Second, there is no programme to establish renewable energy systems on anywhere near a scale of 35 percent of current energy use within 25 years. And third, the best detailed analyses of oil are indicating disturbingly that the global oil peak will be as soon as 2005, and that it is the shadow of this peak which has been responsible for the recent tripling in the price of oil.

It will be followed by progressive price increases and actual supply limitations which will eat rapidly into the central structures of economic stability.

It may well be too late, now, to make any effective provision for the imminent loss of cheap and reliable supplies of oil. Given that transport is wholly dependent on oil, and that modern economies are wholly dependent on transport, the consequences will be grave. However, the government declines even to arrange for an independent study of the matter. That is negligent.