Dwindling supplies and no plan B — are we heading for the scenario of Mad Max?
It is 30 years since the film Mad Max was made, launching the career of Mel Gibson.
The film made a big splash at the time for its terrifying view of a world without oil, where gangs of grisly-looking people roam deserts in a post-apocalyptic world, killing each other to get their hands on the few drops of petrol that some have managed to produce in makeshift refineries. Social order has completely broken down.
Great film if you like that sort of thing but complete fiction, of course. Or is it? Three decades later, and I wonder if the film was, in fact, years ahead of its time.
Just think back to summer last year when oil prices spiked to $150 a barrel — 10 times the level of a decade earlier. In petrol stations in some European countries, people started to drive off without paying and drivers had to be banned from filling cars before they had paid up. In Britain, people stole heating oil out of the tanks that sit outside many houses in the country.
Imagine what would happen if prices rose to, say, $300 a barrel. Or higher. Not only would it become too expensive to drive unless absolutely necessary, but food would become prohibitively expensive to transport, goods from China would be too expensive to ship, and plastics, which come from oil, would be unaffordable. The cold turkey after more than a century of cheap oil would be painful indeed.
For developing countries it would be fatal — many could not afford energy at those prices.
Oil has fallen sharply in price since last summer, but this is only because the world tumbled into its worst recession in decades, clobbering industrial output and trade volumes, and therefore oil demand. What is curious, though, is that oil prices, having tumbled below $40 earlier this year, went back above $81 a barrel last week, their highest for a year.
There are plenty of possible reasons, such as the continuing fall in the value of the dollar, in which oil is priced, or the piling in of speculators who think a recovery will push up oil prices. Or you could reach for the old chestnut of supply and demand. Demand has fallen a lot, sure, but maybe supply is not what it used to be.
Indeed, take a graph of the oil price over the past couple of decades, chop off last year’s spike to $150 and this year’s plunge to $35 and you can see that oil prices have been on a steady upwards trend for a decade. The question is why?
An excellent new report, Heads in the Sand, released last week by the non-governmental organisation Global Witness — the group that first brought “blood diamonds” to the world’s attention — looked in depth at what is happening to the supply of oil. And it is frightening.
The author, Simon Taylor, has spent two years working on this issue, in particular, analysing the forecasts issued late last year by the Paris-based International Energy Agency (IEA), in which it admitted for the first time that world oil supplies were about to start to dwindle just as demand from countries such as India and China is accelerating rapidly. The IEA had previously asserted that oil production would not peak before 2030 at the earliest. Now it thinks we might be very close to that point.
The IEA figures showed there could be a gap of 7m barrels a day between supply and demand by 2015. That represents about 8 per cent of the expected world demand by then, 91m barrels a day. The gap will grow as demand keeps growing. Taylor warns that world supply levelled off between 2005 and 2008, so quite where the new oil is going to come from is unclear.
Taylor takes issue with the IEA’s recommendation that the world spend $450bn (yes, billion) a year looking for new oilfields that may or may not be there and so which render its forecasts overoptimistic. He thinks governments should admit they have ignored the problem and don’t have a plan B.
They certainly need one. Britain’s oil production, for example, has already fallen by half in the past decade and the IEA expects production from all other existing oilfields to fall by that amount between now and 2020. It warns that the world needs to find an extra 64m barrels a day of capacity by 2030 — equivalent to six times the current Saudi Arabian production. That seems unlikely given that new oil discoveries peaked in 1965. In 1984 world production overtook new discoveries for the first time.
Taylor also points out that the announcements of “big” discoveries by the oil majors in the past few years do not add up to very much — less than 2m barrels a day — and only if those fields contain as much oil as the companies reckon. But even then they still fall a long way short of replacing the 3.7m barrels a day the world is losing every year.
Many people think Canadian tar sands are going to save us. Well, even the Canadians don’t think they can produce more than 3m barrels a day from the tar sands of northern Alberta.
This is nowhere near the scale of the problem, quite apart from the environmental degradation caused by tar sand extraction.
Four key issues
Taylor said the four key issues about oil — declining output, declining discoveries, increasing demand and insufficient projects in the pipeline — have been apparent for at least a decade. The U.K. government has done no work on future oil supplies, has no plan and barely acknowledges the problem, despite years of campaigning by, among others, the former oil industry geologist turned solar power entrepreneur Jeremy Leggett, who has written whole books on the subject of “peak oil.”
Taylor says governments must move at lightning pace to reduce energy demand through greater efficiency and go hell for leather for renewable energy sources, although he knows it is probably too late to avoid a huge energy crunch within the next decade or so. That annual $450bn the IEA talks of would buy you a lot of renewables such as wind and solar power if it were not being spent chasing ever-harder-to-find oil and gas.
So what chance is there of the authorities moving quickly? Well, Britain’s renewables “revolution,” which the government loves to talk of, is simply not going to deliver the goods. In mid-October the Department of Energy and Climate Change closed the consultation on the “feed-in tariff” proposal it has been forced to introduce by backbench MPs. Feed-in tariffs have kickstarted renewables in many countries, especially Germany, by offering consumers a healthy price for electricity they feed into the grid.
The energy department will announce its decisions in about a month but, unsurprisingly, officials are aiming low. They want the tariff to offer returns on investment of 5-8 per cent. That’s not enough. The Germans get around 10 per cent.
Alan Simpson MP, appointed by the climate change secretary Ed Miliband to oversee the tariff’s introduction, wanted 12 per cent or more to allow the U.K. to bring about a renewables revolution. But he has been thwarted by officials. “It’s designed to fail,” he says.
And people who have already invested, and got one of the handful of grants available in recent years, are likely to be worse off under the proposal. This means early adopters of these technologies, who put their hand in their pocket to the tune of thousands of pounds, will be penalised. You really couldn’t make it up. When the oil supply crunch comes, we are in trouble. — © Guardian Newspapers Limited, 2009