Peak Oil

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Is it possible that the world has reached the point of maximum oil production? – Some geological experts believe so and if their 'peak oil' theory is correct, this would have enormous consequences for energy security and for the world's economy. Nevertheless, the issue receives little attention in the EU's energy security policy.

Oil is the life blood of our economies but it is also a finite, non-renewable energy source. The world currently consumes 85 million barrels of oil per day for electricity, heating, transport, chemistry and other economic activities. According to the International Energy Agency’s Energy Outlook, by 2030 the global economy will consume 130 million barrels of oil per day. But is it possible that the global oil supply will not be able to follow demand because the oil reserves have started their decline?

This is the question asked by a growing group of energy experts, who predict that world production of oil is close to its maximum and will decline in the future. The theory is known under the name "peak oil" and has also inspired others to look into the "peaking" of gas and other energy sources.

Peak oil does not mean that “oil is running out”. It means that maximum oil production is reached or, in other words, that half of the recoverable oil has been produced. 

The peak oil concept goes back to US Shell geologist Marion King Hubbert, who, in 1956, correctly predicted that the production of US oil would peak around 1970. Building on Hubbert's model, several energy experts have tried to calculate when global production will reach its peak. The "pessimists" state that the peak oil point has already been passed, while others (the "optimists") believe that the world still has more oil production growth for the next 20 to 30 years.

The current debate on peak oil is being driven by the Association for the Study of Peak Oil and Gas (ASPO) (see Wikipedia for more information). This association was set up in 2000 by international oil consultant (and former vice-president of Fina) Colin Campbell and consists of scientists, academics and petroleum geologists. The "peak oilers" have developed quite a following all over the world and several countries now have ASPO associates. ASPO has effectively used the internet to spread its theory. A google search in May 2007 shows over 1.4 million results on the phrase "peak oil". 

There are several important issues in the peak oil debate:

  • Data transparency on reserves

One of the biggest problems to define a long-term energy policy is that the existing official data on reserves are seriously poor and sometimes flawed. Current estimates of oil reserves by international organisations such as the International Energy Agency (IEA) or the US Geological Survey are based on information provided by oil companies and producer countries. Recent events have shown that oil companies have sometimes overestimated their reserves and have had to adjust their figures. The situation is even more questionable with figures used by producer countries. OPEC countries for instance report higher oil reserves in order to maintain their production quotas (the more reserves they declare, the more they are allowed to pump and the more money they can make). Most OPEC countries have not adjusted their 1980s figures even though they have pumped up a lot of oil since then and there have been no major new "supergiants"  discoveries. 

One of the most interesting studies in this context has been undertaken by specialised energy investment banker Matthew R. Simmons. For his book "Twilight in the desert: the coming Saudi oil shock and the world economy" (2005) studied hundreds of documents from Saudi Aramco and came to the conclusion that Saudi Arabia is close to its maximum production. With most of the world economies dependent on Saudi Arabia increasing its production in the future, this would have serious implications for world economic growth. Since 2005, there have been several expert reports that the world's biggest oil field, the Saudi Ghawar field is close to or past its peak.

The international community is aware of these problems of reliability of data. Therefore it launched in 2005 the Joint Oil Data Initiative (JODI). 

  • Global Peak oil dates

Total North American oil production peaked in 1997, Asia-Pacific production in 2000 and OECD production in 1998. With large reserves remaining in the Middle East and (probably in Latin America) it is hard to predict when exactly global peak oil will occur. Pessimistic estimates range from 2007 to 2012. The International Energy Agency thinks it will happen around 2030 and some optimists (ExxonMobil) report oil production will still grow until 2100+.

Governments as well as parliaments are not yet fully aware or convinced of the peak oil issue. It is therefore not really present on the political agenda, contrary to the climate change debate. There have been sporadic contacts between ASPO members and the European Commission's DG TREN (energy and transport) but without much effect on internal policies.

However, there are some signs that this may be starting to change. In the US House of Representatives, Republican congressman Roscoe Bartlett has set up a bi-partisan "Peak Oil Caucus" and introduced a peak oil bill in January 2007.

Speaking in January 2008 ahead of the Commission's energy and climate change package of legislative proposals, EU Energy Commissioner Andris Piebalgs drew attention to the "overlooked" issue of dwindling oil reserves. In unprecedented public remarks, he questioned whether oil supplies could "keep up" with global demand, which is expected to at least double by 2030. The combined challenge of climate change and supply security leads to the conclusion that the EU cannot "hang on" to its "old, fossil energy system", he said.

The big oil companies seem to have a hard time responding to the peak oil issue. Some companies such as Shell or Total are aware of the issue but see the peak only in the mid-term future (2020-2030). Others like Chevron have started campaigns to warn about the declining reserves in the future. Chevron in 2006 had a remarkable advertising campaign with the slogan "It took us 125 years to use the first trillion barrels of oil. We'll use the next trillion in 30". BP, on the other hand, has stated that the peak oil theory is "absolutely unreasonable", and is confident that plenty of reserves remain for exploitation (EURACTIV 21/06/07).

Most Western oil companies are more worried about other challenges to the oil-supply and demand issue. According to them lack of new investments and the rising energy nationalism (Russia, Venezuela) could endanger future supplies more than the geophysical limits. They also point to the development of new exploration and production technologies and the use of non-conventional sources of oil (oil shale, tar sands, deep-sea exploration, coal-to-liquids etc.). 

But a 09 July report by the International Energy Agency (IEA), which predicts a major oil supply "crunch" within 5 years, brought the issue of dwinding supplies back to headlines (EURACTIV 10/07/07).

  • 9 July 2007: IEA Medium-Term Oil Market Report predicts "supply crunch" in five years.
  • 21 June 2007: BP annual Statistical Review refutes peak oil theory.
  • 7 Nov. 2007: IEA World Energy Outlook warns of "runaway" energy thirst and calls for a "radical shift" towards cleaner and more efficient energy technologies.
  • 14 Jan. 2008: Energy Commissioner Andris Piebalgs makes first public statement on peak oil, questioning whether supply can keep up with global demand by 2030.
  • 22 April 2008: Commission launches consultation on whether changes should be made to the management of emergency oil stocks.
  • 17 June 2008: Close of Commission consultation.

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