In the Times this week Bill Emmott argued that the world’s oil supply problems are simply down to OPEC greed, dismissed peak oil as the work of “planetary gloomsters” and assured readers that the world is not running out. Trotting out a series of discredited arguments, he maintains there would be plenty of cheap crude if only “the nationalists in OPEC and the extortionists in Russia” would let the Western oil companies exploit their resources instead of forcing them to go for the difficult stuff – like the Canadian oil sands, or ultra-deep water offshore Brazil . Investment here was “slow” even before the financial crisis and has collapsed since. But that will change over the next decade or so “if prices stay high”.
In a target so rich in prejudice and ignorance it is hard to know where to start. Emmott makes no mention of the peak in non-OPEC supply which is widely expected in the next decade, and in spite of unfettered access for the international oil companies. He fails to acknowledge the well-founded doubts about OPEC reserves, or to understand that the spike and collapse of the oil price over the last 18 months has been entirely inimical to their interests, and had they been capable of preventing it – by pumping more oil – they surely would have. Yes, OPEC has shut in capacity today, as we grind through the deepest recession since the 1930s, but in the years 2004-2008, when demand in the developing world was booming but global output was mysteriously stuck on plateau, the cartel was pumping flat out, just like everybody else.
His argument that the oil supply will be restored to health “if prices stay high” is astonishing in the light of recent experience. Listen and repeat, Mr Emmott: oil-price-spikes-cause-recessions-cause-oil-price-slumps-destroy-business-case-for-marginal-oil-projects-tightens-oil-market-causes-spike. Since the oil price collapse from $147 per barrel, the IEA reports 2 million barrels per day of planned oil production capacity has been cancelled or “deferred indefinitely”, and a further 4 mb/d has been delayed by 18 months or more, so creating the conditions for another spike and collapse whenever the economy recovers in earnest, as argued cogently by Steven Kopits of Douglas-Westwood.
Mr Emmott’s arguments are astonishing not simply because he is an alleged economist, but because from 1993 to 2006 he was editor of The Economist. Older readers may recall this was the organ whose cover story on 4th May 1999 was Drowning in oil, which argued that the world was swimming in black stuff, and the price would soon drop from $10 to $5 and stay there. Back in the real world this was the very moment the oil market turned, and the price started its decade long march to last year’s all-time high. The Economist’s prediction was directionally wrong and out by a factor of 30.
Undeterred by his earlier effort, Mr Emmott concludes that the oil age will end, apparently without crisis, as a result of technological advances. I hope he is right, but the evidence suggests his judgement is questionable. “Then”, he concludes, apparently without irony, “the usual forecasts will turn out to be wrong — as usual”. He should know.