First published in Petroleum Review, September 2011.
There has been much excitement in the press recently about the last government’s attitude to peak oil. Documents released under Freedom of Information requests seem to show New Labour facing both ways: dismissing the issue in public, while privately worrying about its potential impacts. Far more relevant today is the attitude of the coalition, which is just as perplexing and equally dangerous.
When the coalition took power it looked as if policy in this area might soon improve. The Conservatives had at least acknowledged the notion of peak oil in a green paper, and DECC’s chief scientific advisor Professor David Mackay launched a consultation, inviting views on the oil supply outlook. In December last year, Energy Secretary Chris Huhne told Radio 4 “we don’t know when exactly the oil is going to start peaking and production is going to start running down, but we don’t as a nation want to be putting ourselves in hock, making ourselves volatile to these sorts of markets”. So far so good.
It’s a shame then that DECC appears to have ignored the bulk of the evidence submitted to its consultation. Of 14 submissions published on its website, 9 support the case for an early peak and two others talk of an early oil supply ‘crunch’. Even Shell foresees the oil supply reaching a plateau in the mid-2020s, and says “supply will struggle to keep up with demand”.
The International Energy Authority’s World Energy Outlook was also included in the evidence. The IEA foresees a conventional peak around 2020, and global peak ‘more around 2030’ – according to a statement released to me in 2009. However, another paper submitted to the consultation, from Uppsala University, argues cogently that key technical assumptions in the IEA model make it wildly over-optimistic.
Yet when I interviewed him earlier this year, David Mackay seemed strangely sanguine about the oil supply. “On oil specifically the expert view seems to be, yes, there will be supply crunches and resulting price shocks, but if you are happy to factor in the unconventional oils then even liquid oils will be available for many decades”.
The idea that non-conventional oil can fill the gap after the peak in conventional production is not one you will find in most of the consultation submissions. It is based on the common misconception that simply because resources such as the Canadian tarsands are vast, they can be produced quickly. In fact, shortages of labour, water and capital – tarsands projects are expensive and vulnerable to oil price volatility – mean production growth is likely to be slow.
Analysts IHS CERA estimated in a 2009 report that the tarsands production could rise to 6.3 million barrels per day by 2035, and that, one of the authors told me, “is really pushing it”. By contrast, the UK Energy Research Centre’s report on conventional oil depletion – submitted to the consultation – concludes we need to build another 60 million barrels of daily production capacity by 2030 just to stand still. In other words, the hole left by conventional oil depletion will be ten times the likely production from tarsands, even before allowing for demand growth.
Not all the submissions to the consultation were published: two papers were withheld at the request of their authors. These may have been highly persuasive, but they can hardly represent the consensus. So it is hard to see how DECC can justify fence-sitting on this vital issue. A spokesman tells me the government doesn’t know when oil is going to peak, and has no plans to publish its own assessment of the evidence it has gathered. So what on earth was the point?
But if the government really ‘doesn’t get’ the seriousness of the oil production outlook, it does seem alert to the potential impacts of one of its symptoms – extreme oil price volatility. Perhaps this is its way of naming the unspeakable.
An internal analysis prepared last year by HM Revenue & Customs, released by DECC to the Times newspaper under Freedom of Information, modeled the impacts of an oil price spike in 2011. If the oil price had doubled from around $80 to around $160, the paper shows it would have cost the economy £100 billion over five years, and the impact on GDP would still be felt beyond 2040. My own view is that peak oil will provoke many such spikes – $147 in 2008 was just for starters – and the cumulative impact will be far greater.
DECC has recently invited external consultants to bid to provide further analysis on the impact of oil, gas and coal price spikes, and whether climate change related policies make the country more resilient to fossil fuel shocks. This smacks of wishful thinking; the answer is likely to be yes, but nothing like enough.
It is of course important to understand how much peak oil is going to hurt, but that in itself will do nothing to help when the crisis breaks. It is long past time for the government to develop policies to radically reduce our oil dependency within 20 years.