Over the recent years, the energy sector has witnessed a tense debate amongst energy experts with one side warning of Peak Oil -mostly retired oil companies officials and geologists from the ASPO- and on the other side the “optimists” such as Exxon Mobil[1] and Saudi-Arabia[2]. Until now, the official position of the British Government on the issue can be summarized by this statement from the 10 Downing Street:
“The Government’s assessment is that the world’s oil resources are sufficient to prevent global total oil production peaking in the foreseeable future. This is consistent with the assessment made by the International Energy Agency (IEA) in its recent 2007 World Energy Outlook (WEO), which concludes that proven reserves are already larger than the cumulative production needed to meet rising demand until at least 2030.”[3]
Nevertheless, in 2008 the IEA conducted for the first time[4] a detailed field-by-field analysis of global oil production and its findings are bleak. Asked by a journalist on what the previous analysis relied on, the Chief-Economist of the IEA acknowledged, “it was mainly an assumption”[5]. In the 2008 WEO, they have analysed about 800 fields, which account for ¾ of global reserves and more than 2/3 of global oil production. They come to the conclusion that decline rates are far higher than previously thought, between 6.7 and 8.6% a year[6]. As result, they now estimate that to maintain the current levels of oil production (about 85 MBD) by 2030 the world would need to develop and produce 45 MBD; as said by Dr. Fatih Birol, approximately four new Saudi-Arabias[7].
Simultaneously, they have analysed all the projects that are financially sanctioned in all the countries in the world (about 230) up to 2015. As it takes five to ten years to produce oil from a new field, they have a clear image of the coming situation. When they add all the projects together (if all of them see the light of the day –unlikely with the current credit crunch[8]-) they will bring about 25 millions barrels per day[9]. However, because of the important decline rates, the world will still be short of “at least” 12.5 MBD before 2015[10]. Asked by a journalist if this means Peak Oil, Dr. Birol answered, “We are facing a serious threat”[11].
This is a significant development, as the IEA is responsible for advising OECD countries, including the USA, on energy issues. As mentioned by Edward L. Morse at the Council on Foreign Relations, the IEA is “the most authoritative source of information and analysis on the international energy sector” and the WEO is “now recognised as the most authoritative source of forward looking energy market and analysis”[12].
In 2009, the investment bank Merrill Lynch conducted a similar analysis and concluded that, “the world now needed to replace an amount of oil output equivalent to Saudi Arabia’s production every two years”[13]. Yet, oil production is already in an irreversible decline in 54 of the 65 most important producing countries and we nowadays consume three barrels of oil for a single one discovered[14]; an unsustainable situation. Moreover, the US Army Corps of Engineers expects global oil production to peak anytime between 2010 and 2015[15] and the latest annual report on geopolitical prospective from the US Joint Forces Command reached the stunning conclusion that:
“By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD… The implications for future conflict are ominous...”[16]
To quote Dr. Colin Campbell, founder of the ASPO, “what matters - and matters greatly - is the vision of the long decline that comes into sight on the other side of it”[17]. As mentioned by the EU Energy Commissioner, Andris Piebalgs, once oil production pasts its peak, it could then decline by “more than 4% per year” and “in just five years we could have a deficit of over 20%”[18] in global oil production. To understand how serious a decline of 20% really is, the Commissioner reminded its audience that “the oil crisis of the 70s” was caused “by a deficit between supply and demand of only 5%”[19]. At this pace, global oil production could decline by 50% from its current level, as soon as 2030[20].
Moreover, several authoritative groups such as the German-based Energy Watch Group[21] fear that the actual rate of decline could be much higher. In fact, the annual decline of 4% previously mentioned only represents the geological decline; it ignores the economic and geopolitical effects the geological decline could have on global oil production. As an example, once oil production starts to decline, some importing countries may decide to invade oil exporting countries, thus further destabilising global oil production. In 2008, a taskforce composed of eight leading industrial groups (including Virgin, Yahoo and Solarcentury) concluded that,
“On balance, having reviewed the state of play in global oil production, the taskforce considers that the “descent” scenario is a highly probable global outcome. We also fear that a “collapse” scenario is possible, albeit less likely… Peak oil is more of an immediate threat to the economy and people’s lives than climate change, grave as that threat is too… The risks to UK society from peak oil are far greater than those that tend to occupy the Government’s risk-thinking, including terrorism”[22]
A CONTESTED REALITY: BY WHOM AND WHY?
For many years, Peak Oil was ignored by officials from oil companies and governmental agencies such as the IEA[23]. They repeatedly argued production was not at risk. However, over the recent years and in light of indisputable facts, we have seen a radical change in the discourse of the IEA[24] and leading oil companies such as Shell[25], Chevron[26] and Total[27]. While they do not use the same rhetoric as the early whistleblowers of the ASPO, they nowadays acknowledge the world is going to face a serious supply crunch within the next few years. In a recent video interview, Chevron’s Vice-Chairman, Peter Robertson, clearly expressed his fears:
“You know, it’s often times people will ask, ‘Why in the world would Chevron be encouraging its customers to use less energy?’ After all, we sell energy – that’s our product… In many ways, a lot of us are concerned about the ability of the world’s supply system to provide the energy that people need… Chevron is not just a company; we’re people. We’ve got children and grandchildren.”[28]
Yet, the most impressive conversion came out from the IEA. In 2005, Claude Mandil, the Executive Director of the IEA declared:
“Are we running out of oil? The doomsayers are again conveying grim messages through the front pages of major newspapers... The IEA has long maintained that none of this is a cause for concern.”[29]
However, since the IEA conducted a detailed study in its 2008 WEO, it no longer denies the hard truth; the so-called “doomsayers” were right. As this recent interview of the Chief-Economist of the IEA, Dr. Fatih Birol, points out:
“George Monbiot: Now in 2005, the Executive Director of the IEA, called people who take the view, exactly the view you expressed, “doomsayers” and said that “none of this is a cause for concern”. Will you organisation apologise to the people he referred to?
Fatih Birol: I don’t know what our Executive Director in 2005 said.
GM: He dismissed the whole argument that you’ve just put forward.
FB: No, no. The argument I put forward, is I believe a valid one. And what I believe a strong one and maintained by facts and figures.
GM: So will your agency now apologise to the people he referred by calling “doomsayers” for saying exactly what you just told me?
FB: I, I don’t know. You should ask this question to our current Executive Director.”[30]
The discomfort of Dr. Birol was more than evident. Nevertheless, Mr. Mandil who retired from the IEA in 2007 holds an important share of responsibility for denying the reality. Indeed, by sounding the alarm three years earlier, precious time could have been saved (e.g. developing alternative energies). Instead he chose to ridicule and discredit those who saw the seriousness of the situation ahead; this illustrates how the IEA which was setup soon after the first oil shock to advice OECD countries had failed its mission.
Similarly, Stephen Harvey (Director of the Oil and Gas Office at the Energy Information Administration, US Department of Energy) kindly accepted to read my degree’s dissertation on Peak Oil and International Relations. And apparently he seems to believe that we are now at global Peak Oil:
“There are many compelling arguments regarding the increased difficulty in reaching oil reserves which may well result in a future view of historical production that looks sort of like a bell curve. And, it is quite plausible that the peak of that curve is around now.”[31]
To the desolation of many, the debate has not been closed. Indeed, a few voices continue to sponsor, actively and loudly, the vision that oil production does not face any danger. Amongst them, we find three notorious voices, namely the CERA oil consultant, the OPEC cartel and not surprisingly in regard to its notorious poor record of scientific objectivity, the oil company, Exxon Mobil. In fact, a 2006 article from The Wall Street Journal suggested that Exxon Mobil and Saudi-Arabia coordinated their attacks on the Peak Oil advocates[32].
Exxon Mobil, the largest international oil company, has become renowned over the last decade for its support to global warming deniers[33]. According to a report from the Union of Concerned Scientists, "ExxonMobil has manufactured uncertainty about the human causes of global warming just as tobacco companies denied their product caused lung cancer"[34]. The report added that Exxon Mobil “raised doubts about even the most indisputable scientific evidence”[35] and “attempted to portray its opposition to action as a positive quest for sound science rather than business self-interest”[36]. With this record of deliberate manipulations of scientific facts and evidences, the denial of Peak Oil by Exxon Mobil does not come to us as a surprise. At this conjuncture, we can picture the hidden motives for Exxon Mobil to do so. By telling the public that oil production will no longer be plentiful, the consequences for the company are numerous. They include the danger of diversification from oil and creating a context of mistrust regarding oil companies; all of them bad for short-term business. In fact, the executive of the company is accountable to shareholders yearly; failing to meet the level of profitability asked would simply result in his replacement. Therefore, publicly admitting Peak Oil is real would be equal to cutting the branch they sit on. However, unlike most other oil companies who agreed that an oil crunch is coming, Exxon Mobil manipulates the information and uses its powerful logistics to promote a biased vision; this is where Exxon Mobil is highly guilty.
Regarding the OPEC, we saw earlier how prone they were to manipulate their reserves and we should not expect much from official OPEC statements. The following comment from Dr. Chalabi, the former OPEC Secretary-General, gives additional information about how the cartel really works:
“OPEC countries do not care about what might happen 20 years from now. They care about what they get today. Because, these are politicians, they want more money, to spend rationally or not. What may happen 20 years from now… by that time they are dead, they don’t care.”[37]
In September 2006, the then CEO of the Saudi-Aramco, the world’s largest oil company, publicly declared that the world had “more than 140 years of supply”[38]. While the Saudi Oil Minister, Ali Al-Naimi, told the public not to worry about what he calls “the Peak Oil theory”[39]. Nevertheless, Dr. Shokri Ghanem, head of the Libyan National Oil Company, a relation of OPEC’s current Secretary General, declared in a report published by the OPEC Secretariat:
“All in all, most would appear to agree that peak oil output is not very far away for all of us. It could take place sometime within the next decade or so, which in fact means that there is not much time left for a world economy to be driven largely by oil.”[40]
After having contacted several officials from the OPEC Secretariat in Vienna, I received a meaningful answer from Dr. Mazyar Mazraati (Energy Studies Department), who replied, “Unfortunately we are not allowed to have interviews”[41]. Furthermore, Dr. Sadad al-Huseini, former Head of Exploration and Production at the Saudi-Aramco, publicly contradicted his former bosses, by declaring that, “oil is likely to peak at a 95 MBD plateau by 2015”[42]. The most astonishing declarations came out from a former senior energy expert at the National Iranian Oil Company (NIOC), the late Dr. Samsam Bakhtiari. Indeed, in 2006, Dr. Bakhtiari said that oil reserves in the middle-East were “about half, or even less than what the respective national governments claim” and added “as for Iran, the usually accepted official 132 billion barrels is almost 100 billion barrels over any realistic assay”[43]. Asked why few scientists from OPEC countries spoke about Peak Oil, he declared:
“The present company officials simply detest me (all of ‘them’) and are doing their utmost to have me quit… Maybe the others are told to shut up and do so for their own good (and benefits). I will always speak out… Well, I hope you were able to read between the lines, because although none of ‘them’ speaks or reads English, someone might call ‘them’ to attention.”[44]
In October 2007, Dr. Bakhtiari passed away “suddenly and unexpectedly of a heart attack”[45], two month after having distanced himself from the ASPO and the Peak Oil movement[46]. Moreover, in a 2008 oil conference Dr. Kjell Aleklett[47] reported a disturbing conversation he had with Dr. Bakhtiari during ASPO’s first conference in Uppsala, May 2002:
“I was kind of shocked when he arrived because he said, ‘Kjell, you should know, when I made the decision to go to this conference in Uppsala, I did that because I like to be present when history is written. But I know when I come back to Iran, it might be that I have moved a couple of steps up the list.’ then I asked what kind of list? ‘Well, you know… the list from which they are removing people.’ I became very nervous of course when he said that… Unfortunately, just before our conference last year, we got the news that Ali Samsam Bakhtiari had die.”[48]
The Cambridge Energy Research Associates is a well-known energy consultant group and a leading opponent to Peak Oil[49]. Yet, CERA has been accused of providing a biased vision of the situation as it is “close to the oil industry”[50] and so not an independent actor[51]. The following statement from Dr. Jeremy Leggett, head of the UK Industry Taskforce on Peak Oil & Energy Security, well summarizes the situation:
“Nobody is lying, and there is no conspiracy. What we fear is that there is a pervasive and dysfunctional culture of over-optimism in the global oil business, resembling in many ways the one that has become so ruinously evident recently in the financial-services sector.”[52]
ANY VIABLE ALTERNATIVES ENERGY?
There is no easy, present, solution to the crisis. Alternatives to oil are still far from being a feasible replacement; hydrogen for example would require 30 to 50 years to replace oil economies[53]. Meanwhile, the automobile industry is now planning to develop electric cars in the near future. The reason behind this revolution was made clear by Toyota's Vice-President, Irv Miller, "Last summer's $4-a-gallon gasoline was no anomaly... It was a brief glimpse of our future. We must address the inevitability of peak oil"[54]. While the first electric cars are expected to come on line in 2010-12, in order to replace 50% of the car fleet, the world would need between 10 to 15 years[55]. Besides, as manufacturing a single car requires at least 20 barrels of oil[56], once oil production starts to decline, in 2011-2013[57], it will increasingly become difficult to develop the electric car on a massive scale. In fact, the closer we get to Peak Oil, the more difficult a massive and costly emergency plan to develop alternative energies will become. Our collective failure in having developed alternative energies twenty years ago is about to fall on us. As mentioned by a report on Peak Oil, commissioned by the US Department of Energy, “Previous energy transitions (wood to coal, coal to oil, etc.) were gradual and evolutionary; oil peaking will be abrupt and revolutionary”[58].
THE MEDIA AND POLITICIANS
As Peak Oil became a mainstream issue, it received an increasing attention from the media. Nonetheless, on a regular basis, articles that deny any problem regarding the future of oil production appear in prominent media. In 1999, The Economist famously predicted an era of cheap oil and forecasted a barrel at 5 dollars[59], while oil prices reached 25 dollars in 2000 and rose ever since. Similarly, in August 2007, CNN Money published an article untitled “Why oil won’t hit 100 dollar”[60];a year after, oil prices climbed to 147 dollars. More recently, a Newsweek article that ignores the geological reality was named, “Cheap Oil Forever: Why Prices Will Keep Falling”[61].
As a result, politicians and the public who read those articles and who have only a limited knowledge and interest in oil production develop a flawed perception of the reality. Besides, politicians who have short-term interests, namely elections to win, naturally prefer to support the optimists (few people like to hear the bad news, especially when there is no easy solution) or more commonly, they simply ignore the problem. The following quotes from two renowned energy experts give additional information:
“To try to deal with what would happen in the case of Peak Oil requires an enormous amount of effort; it’s easier to deal with day-to-day problems that it is to deal with the long-term problems. Secondly, there are enormous vested interests in the current status quos”[62]
Ray Leonard, Vice President of Kuwait Energy, former Vice President of Yukos
“It’s much easier for a politician to react to a crisis than to foresee one; they don’t launch the lifeboats until the ship is sinking”[63]
Dr. Colin Campbell, geologist, founder of the ASPO
However, there is also a major difficulty for policy-makers to access independent and objective information on Peak Oil; the IEA is now working to educate policy-makers on the issue, but time is running out. In fact, it took 30 years for Climate Change to become accepted as a scientific reality, the debate on Peak Oil may have started too late. By the time policy-makers, the media and most of all, the public are fully aware of the seriousness of the situation and willing to act, oil shortages will be a reality. In addition, by the time people are aware of the crisis, it will be increasingly difficult to mitigate the crisis as oil production will not stop its irreversible decline.
This article is based on arguments developed in my degree's dissertation: "How the Imminent Decline of Global Oil Production will affect International Relations" (BA International Relations, University of Exeter, UK)
Disclosure: Long GOLD and OIL
[17] Email interview with the author, 10 September 2008.
[24] Javier Blas and Carola Hoyos, “Oil price to bounce back with recovery, IEA warns”, (Financial Times, 6 November 2008).
[31] Email discussion with the author, 6 May 2009.
[41] Email conversation with the author, 11 February 2009.
[46]A.M. Samsam Bakhtiari, "PERSONAL CLARIFICATION", (SFU, June 2007), <www.sfu.ca/~asamsamb/PERSONAL%20%20CLARIFICATION/Personal%20Clarification.htm>
[47] Dr. Kjell Aleklett is Professor of Physics at Uppsala University (Swedish leading University) and President of ASPO. In 1978-79 and again in 1983, he was invited to work with Nobel Prize winner Glenn T. Seaborg, Lawrence Berkley Laboratory. In 2005 he was asked to give a testimony on peak oil before the US House of Representatives Subcommittee on Energy and in 2007 he was asked by the OECD to write a report on Peak Oil. < www.peakoil.net/about-aspo/aspo-president>;
[52] Jeremy Leggett interviewed by The Oil drum, "Jeremy Leggett discusses the UK Industry Taskforce on Peak Oil and Energy Security", (The Oil Drum, 10 November 2008), <europe.theoildrum.com/node/4730>;
[53] US National Academy of Engineering, “The Hydrogen Economy: Opportunities, Costs, Barriers, and R&D Needs”, (The National Academy Press, 2004).
[55] R. Hirsch, R. Bezdek and R. Wendling, “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management”, (US Department of Energy, February 2005).
