Sunday, 21 October 2007

Slippery Slope - The Arrival Of Peak Oil

Thanks to the AECB for aleting me to the following story from 3rd Oct 07.

The Irish chapter of the Association for the Study of Peak Oil (Aspo) could hardly have wished for better. Last week, on the first day of Aspo's recent conference in Cork, the oil price obliged by striking a new all-time high. And in the following days it struck three more in a row.

This was no mere serendipity. The price has since drifted a little, but at the time of going to press remains around $80 a barrel. That is an eightfold increase in less than a decade, and several analysts now forecast $100 oil by the end of next year. All of which reflects not only the usual short-term vicissitudes of the oil market - hurricanes, Iran, trouble in the Niger Delta - but also the gnawing realisation that global oil production is approaching some fundamental geological limits.

For many years, the idea that global oil production will soon start to fall, with potentially catastrophic economic consequences, has languished on the fringes of the environmental debate, with nothing like the recognition of climate change, and shunned by the industry itself. But when the history is written, 2007 is likely to go down as the year the issue of peak oil production went mainstream. In Cork, the former US energy secretary, James Schlesinger, used his keynote speech to tell delegates that they were no longer a tiny minority crying in the wilderness: "You can declare victory . . . and prepare to take yes for an answer."

Although most senior oil executives continue to deny publicly what is becoming more obvious by the month, the industry-wide "omerta" is beginning to crack. Thierry Desmarest, chairman of Total, declared last year that production would peak in 2020, and urged governments to suppress demand to delay the witching hour. In Cork, the former Shell chairman, Lord Oxburgh, expects demand to outstrip supply within 20 years, and that the oil price may well hit $150.

He warned: "We may be sleepwalking into a problem that is actually going to be very serious, and it may be too late to do anything about it by the time we are fully aware."

It is no surprise that most senior oil executives still refuse to accept their business may soon start to contract, but the evidence is becoming increasingly hard to ignore, as companies struggle to maintain production or adequately replace the oil they do produce with fresh reserves.

The international oil companies' difficulties should come as no surprise since they are largely excluded from the areas with the greatest remaining potential, such as the Middle East, and predominantly confined to the most mature regions, such as the North Sea, where British production peaked in 1999 and has already plunged by well over 40%. Organisation for Economic Cooperation and Development (OECD) country's oil production has been falling since 1997, and it is now widely agreed that output in the world, outside the Organisation of Petroleum Exporting Countries (Opec), will peak by about 2010.

There are severe doubts about the size of Opec's reserves, buttressed last year by the leak of internal documents from the Kuwait Oil Company (KOC). The paperwork revealed that although Kuwait has for two decades been telling the world it has about 100bn barrels of proved reserves, KOC's internal assessment was just 24bn, apparently confirming the widely held suspicion that the reserves of many Opec countries were inflated in the early 1980s, when members were vying for larger shares in the new quota system. In 2005, the consultancy PFC Energy briefed US vice-president Dick Cheney that, on a more realistic reading of Opec's reserves, its production could peak in 2015.

Opec recently announced a production hike of 500,000 barrels a day, but some analysts doubt that the cartel has the capacity to deliver even this modest increase. With the International Energy Agency (IEA) forecasting demand to rise by 2m barrels a day to almost 88m barrels a day by the end of this year, the most important question in the oil market is whether Opec's current production ceiling is entirely voluntary. Even if Opec can raise its production, oil consumption in member countries, particularly Iran and Saudi Arabia, is growing so fast that exports may soon start to fall in any case.

But we may have left it too late for planning, since a number of oil chiefs - such as James Buckee, chief executive of the Canadian independent Talisman - are convinced we have already reached the peak. And with some reason: total liquid fuels production is lower today than it was a year ago. Yet still the British government continues studiously to ignore the issue - at least in public. My own view is that we have a few more years, but with demand forecast to keep rising strongly, we will soon find out. It could be that 2007 is the year peak oil goes mainstream because this is the year it arrives. David Strahan is the author of The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man, published by John Murray (£12.99 ).

Full Story at,,2181830,00.html

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