Hype around peak oil’s demise is premature, though you wouldn’t know that if you believed BBC misrepresentations
Last Monday’s BBC News at Ten broadcast a report by science editor David Shukman arguing that concerns “about oil supplies running dry are receding.” Shukman interviewed a range of industry experts talking up the idea that a “peak” in oil production has been “moved to the backburner” – but he obfuscated compelling evidence in his own report contradicting this view.
“There’s still plenty of oil – we just haven’t got all of it out of the ground yet. There’s not a real danger of there being no fossil fuel,” one oil company executive told the BBC. “There’s enough oil in this country for another 100 years with our present technology and there’s more around the world to be found yet.”
Following a chorus of industry hype on the wonders of shale gas and fracking, Shukman finally referred in passing to a new scientific paper published by Eos, Transactions – the newsletter of the American Geophysical Union – saying that the paper “supports the assertion that a peak in oil production is ‘a myth’ but argues that the rising cost of extraction could itself provide a limit, and may act as a brake on economic growth.” He then closed his report with the following quote from a leading industry figure: “The era of cheap oil is over, but we’re a long way from peak oil – costs will go up but the technology will respond.”
The thrust of the message was that peak oil is a myth because we’re not running out of oil. Even if costs go up, this will automatically spur the technological innovation that will make continued extraction of expensive oil viable.
But Shukman’s characterisation of the new Eos paper is a combination of falsehood and half-truth. Far from describing peak oil as a myth, the paper’s conclusions are far more nuanced, and point to an overwhelming body of evidence contradicting the industry hype that the rest of his report parrotts uncritically.
“Peak oil is not about oil reserves or resources, neither of which translates directly into production rate”, the Eos paper points out. “Peak oil is not about running out of oil but about its peak in production…
“So is the idea of peak oil a myth? If readers are expecting an abrupt decrease in oil production, then it is. But if they understand that the manifestation of peak oil is a struggle between supply and demand that is resolved through global oil markets, they will understand that the data shows that peak oil can originate from economic as well as geological factors.”
Indeed, peak oil does not suggest we are ‘running out of oil’, but that a peak in conventional oil production will create an increasing reliance on more expensive, unconventional forms of oil and gas which have a far lower energy output. According to the Eos paper, we seem to be arriving at that point:
“Global production of crude oil and condensates… has essentially remained on a plateau of about 75 million barrels per day (mb/d) since 2005 in spite of a large increase in the price of oil. Even more important, the global net oil exports from oil-exporting countries (oil production minus internal consumption) have peaked and are in decline.”
The Eos paper goes on to point out that while “total oil production has plateaued, production of oil from older existing fields has been in decline, dropping roughly 5% annually, corresponding to a loss of 3-4 mb/d.” Although production from unconventional oil and gas has balanced this decline, they are “difficult and expensive” with “very low energy return on investment (EROI).” In simpler terms, “it takes energy to get energy, and more is required to produce energy from unconventional sources.”
On shale gas, study authors James Murray and Jim Hansen find that:
“There is no doubt that the nation’s shale gas resources are immense, but the contention that the United States has a 100-year supply of natural gas is unfounded. The upper limit of supply is likely closer to 23 years using present- day rates of consumption.”
The increasing dependence on more expensive unconventional sources with lower EROI has a fundamentally negative economic impact from which there is no easy escape. Murray and Hansen point to International Monetary Fund (IMF) data proving a historically “strong correlation between global economic growth (measured by an average of gross domestic product (GDP)) and oil production.” They note that out of 11 recessions in the United States since World War 2, ten were preceded by oil price spikes:
“The increased price of oil leads to a sudden loss of demand (demand destruction) followed by a decrease in the price of oil (countering the initial increase that set this cycle in motion). If the price decreases enough, production of the expensive unconventional resources is no longer profitable.”
Since 2005, though the price of oil has increased, production has still plateaued, suggesting that “supply is no longer able to match demand.” This “inelastic supply of oil” creates a “price-production buffer against increasing economic growth.” As global demand for oil increases, driven largely by emerging markets, this “leads to an increase in the price of oil.” But this in turn means that “more unconventional resources become economically viable for development”, leading to an increase in oil production.
However, the “potential for recession increases”, because the whole cycle was set in motion by “an increase in the price of oil.” As a seeming glut in unconventional production permits a nominal relaxation in prices, economic demand ramps up, once again pushing up oil prices as the economy hits the supply ceiling, reigniting the process. The result is an undulating production plateau correlating with higher but more volatile oil prices, as well as a prolonged recession punctuated by small cycles of ‘recovery’ and contraction.
“This feedback induces a drag on the economy,” write the Eos authors, “and consistent economic growth is difficult against this price-production buffer.” What does the future hold in this context? Rather than booming growth underpinned by fracking, they conclude:
“A 4% growth in GDP would require an annual increase in oil supply of 3%, and that would amount to an increase in oil production of 17 mb/d over the next 5 years. Because production of conventional oil appears stuck on a plateau of 75 mb/d, it is likely that economic growth may be difficult unless there is a transformation away from the historical relationship between energy use and economic growth.”
Compare all this to the BBC’s claim that the Eos paper describes peak oil as “a myth.”
To the contrary, the paper suggests peak oil is alive and well – but that until we face up to the historic link between GDP growth and our over-dependence on cheap fossil fuels, we face the prospect of unrelenting economic strangulation.