Will the real peak oil policy please stand up?
Posted on Tuesday, August 30th, 2011

First published in Petroleum Review, September 2011.

There has been much excitement in the press recently about the last government’s attitude to peak oil. Documents released under Freedom of Information requests seem to show New Labour facing both ways: dismissing the issue in public, while privately worrying about its potential impacts. Far more relevant today is the attitude of the coalition, which is just as perplexing and equally dangerous.

When the coalition took power it looked as if policy in this area might soon improve. The Conservatives had at least acknowledged the notion of peak oil in a green paper, and DECC’s chief scientific advisor Professor David Mackay launched a consultation, inviting views on the oil supply outlook. In December last year, Energy Secretary Chris Huhne told Radio 4 “we don’t know when exactly the oil is going to start peaking and production is going to start running down, but we don’t as a nation want to be putting ourselves in hock, making ourselves volatile to these sorts of markets”. So far so good.

It’s a shame then that DECC appears to have ignored the bulk of the evidence submitted to its consultation. Of 14 submissions published on its website, 9 support the case for an early peak and two others talk of an early oil supply ‘crunch’. Even Shell foresees the oil supply reaching a plateau in the mid-2020s, and says “supply will struggle to keep up with demand”.

The International Energy Authority’s World Energy Outlook was also included in the evidence. The IEA foresees a conventional peak around 2020, and global peak ‘more around 2030’ – according to a statement released to me in 2009. However, another paper submitted to the consultation, from Uppsala University, argues cogently that key technical assumptions in the IEA model make it wildly over-optimistic.

Yet when I interviewed him earlier this year, David Mackay seemed strangely sanguine about the oil supply. “On oil specifically the expert view seems to be, yes, there will be supply crunches and resulting price shocks, but if you are happy to factor in the unconventional oils then even liquid oils will be available for many decades”.

The idea that non-conventional oil can fill the gap after the peak in conventional production is not one you will find in most of the consultation submissions. It is based on the common misconception that simply because resources such as the Canadian tarsands are vast, they can be produced quickly. In fact, shortages of labour, water and capital – tarsands projects are expensive and vulnerable to oil price volatility – mean production growth is likely to be slow.

Analysts IHS CERA estimated in a 2009 report that the tarsands production could rise to 6.3 million barrels per day by 2035, and that, one of the authors told me, “is really pushing it”. By contrast, the UK Energy Research Centre’s report on conventional oil depletion – submitted to the consultation – concludes we need to build another 60 million barrels of daily production capacity by 2030 just to stand still. In other words, the hole left by conventional oil depletion will be ten times the likely production from tarsands, even before allowing for demand growth.

Not all the submissions to the consultation were published: two papers were withheld at the request of their authors. These may have been highly persuasive, but they can hardly represent the consensus. So it is hard to see how DECC can justify fence-sitting on this vital issue. A spokesman tells me the government doesn’t know when oil is going to peak, and has no plans to publish its own assessment of the evidence it has gathered. So what on earth was the point?

But if the government really ‘doesn’t get’ the seriousness of the oil production outlook, it does seem alert to the potential impacts of one of its symptoms – extreme oil price volatility. Perhaps this is its way of naming the unspeakable.

An internal analysis prepared last year by HM Revenue & Customs, released by DECC to the Times newspaper under Freedom of Information, modeled the impacts of an oil price spike in 2011. If the oil price had doubled from around $80 to around $160, the paper shows it would have cost the economy £100 billion over five years, and the impact on GDP would still be felt beyond 2040. My own view is that peak oil will provoke many such spikes – $147 in 2008 was just for starters – and the cumulative impact will be far greater.

DECC has recently invited external consultants to bid to provide further analysis on the impact of oil, gas and coal price spikes, and whether climate change related policies make the country more resilient to fossil fuel shocks. This smacks of wishful thinking; the answer is likely to be yes, but nothing like enough.

It is of course important to understand how much peak oil is going to hurt, but that in itself will do nothing to help when the crisis breaks. It is long past time for the government to develop policies to radically reduce our oil dependency within 20 years.

7 Comments on “Will the real peak oil policy please stand up?”

SailDog Says:
September 3rd, 2011 at 1:27 am

My own view is that oil production (C+C) has peaked. “All liquids” has not peaked. Because the thermodynamic issues involved in these studies (net energy is a good proxy) the government thinks they all equivalent. In fact they are not and this fact will become more evident in time.

However despite this view I do not think prices will increase much beyond the $100-$120 range in current USD. That is because price acts to dampen the economy; and that in turn acts to dampen demand and prices. As we are able to increase efficiency, oil could move up the value chain and prices may increase slowly in line with that process.

The more critical issue is the impact of effective zero growth (caused by the process above) on the credit system. I think a collapse is virtually certain, the only remaining question is will it be fast and violent; or will it be slow stagnation and adjustment to widespread poverty?

Neoclassical economics has a lot to answer for. The traditional view is that the biosphere is a subsidiary of the economy. In fact it is the other way round. The first stupid notion is that all natural resources are infinite. Even more stupid is the idea that oil is just another commodity. Especially stupid is the failure to include energy as a vital economic input, like and on a par with capital and labour. It is these failures in economics that have led us directly to this point.

Russell Says:
September 9th, 2011 at 9:35 am


You are very right to challenge Neoclassical economists on those points.

Having read the excellent work of (fringe) economists from Frederick Soddy, Nicholas Georgescu-Rogen and Herman Daly it is abundantly clear to anyone with a minute grasp of the real world that energy plays a vital role in growth. It is the single biggest limiting factor. This article is a great summary of the key thinkers in this field:

I am also enjoying Richard Heinberg’s “End of Growth” at the moment which frames the current financial crisis in these energy constraint terms.

I offer a big “thank you” to David’s Last Oil Shock for citing the work of Ayres & Warr which proves this with far superior economic growth modelling than Neoclassical economists use:

However, I can only surmise that this field of study is marginalised by Neoclassical economists because it upsets the current status and power interests.

Russell Says:
September 9th, 2011 at 9:39 am

It is interesting to see David Mackay give such optimistic views on energy supply, especially in relation to non-conventional oil.

Do you know if he has ever expressly refuted the merits of assessing Net Energy (EROEI)?

His book suggests that this is merely ignored by him, as also he seems to have done to this direct question on a recent web chat:

This is despite the compelling evidence to the contrary (see my earlier comment).

Spec Says:
September 21st, 2011 at 11:32 pm

They may understand the problem . . . they just have no solutions. And if you have no solutions, why bother talking about it? They could start implementing pre-emptive measures but those pre-emptive measures will be costly and attract critics. So the government plan in the UK (and in most of the world) is to wait until oil prices cause a crisis and then start trying to implement mitigation strategies.

Voters don’t give credit to people that prevent problems. They only give credit to people that solve problems. So the public has to be smacked down hard by peak oil before they will push the government to do something.

BBC in Bad News Shock | QuadRanting Says:
September 29th, 2011 at 11:32 pm

[…] writer David Strahan has a good piece about the Coalition’s stumbling attempts to get to grip with Peak Oil on his blog. He writes […]

yt75 Says:
October 19th, 2011 at 10:17 am

Seems to me that the first priority should be to reduce the tremendous deficit in communication between Climate/CO2 aspects and PO aspects, and I am not not an AGW skeptic or denialist at all, but I see this deficit as :
1) The CO2/Climate change message is much easier to convey than the PO one, typically it can be “ok guys, technological progress is great and all but our ways are really a bit messy these days, we need to make that cleaner”, whereas the PO message can only more or less be :”We truly are in a mess”.
2) On the other hand the PO message is much easier and basic to understand for anybody (or let’s say anybody that is willing to get it, as it doesn’t really depends on detailed physical knowledge such as effects of CO2 and its cycle, but just on the basic recognition of finiteness of fossile resources).
3) PO mitigation measures and “CO2 reduction measures” are almost always the same : reducing the amount of stuff we burn. When they are not, such as with CCS (carbone capture and storage) for instance, they are often “false good solutions”, CCS loss of efficiency is estimated at around 30 or 40% which makes it stupid in all cases : consuming 30% more resources to push the trash under the carpet is nothing but a typical cargo cultist Easter island strategy. Exceptions such as planting more trees on the other hand do not fit in this category, but in the end the bottom lne is : we need to burn less stuff.
4) And for that , seems to me the best policy is still to raise volume based fossile fuel taxes, eventually putting a big part of their revenues in direct redistribution as proposed by J Hansen in (2) below for instance :

Especially as the current “low hanging fruits” in reducing fossile consumption are much more in conservation (insulation, smaller lighter less powerful vehicles) than alternative production, even if that is often less “glamorous”.

James Says:
December 21st, 2011 at 9:01 am

No solutions to peak oil??!! not if you try and maintain the current wasteful practices that have rought this all about. here are a few that wouldnt cost much to implement and wouldnt destroy millions of people.

Industrial hemp – This plant has been actively suppressed for nearly a hundred years. Yet, this plant can produce liquid fuel, food and industrial material, virtually anywhere on the planet? talk about cutting your own throat.

Oyster mushrooms – The oyster mushroom grows on virtually any organic waste, uses ambient radiation from the sun as its energy source (so virtually inexhaustible) and can be grown vertically in tubs or tins, making it perfect for urban growers. Plus it is a very healthy and nutritious food. Any takers? No? enjoy the food riots. By the way, the oyster mushroom could populate sewer systems and waste drains everywhere to eliminate waste and regenerate local ecosystems, increasing local food sources.

Remote working – Everyone has the internet, lots of people do computer based jobs, is there a need to incur thousands of pounds in commuting costs to individuals just to sit on a company computer? is there a need to run increasingly expensive infrastructure when you could scale a lot of it down as people will do their work from home? Does business want to pay for office space that can be virtualised? But what about the layoffs from the industries that are involved in train and motor travel, commercial real estate? see points 1 and 2.

Nothing less than INTELLIGENT, focused action will do now. Intelligent conservation, genuine agricultural production, mass scale urban food production could help avoid hitting the wall.

Post a Comment

Get new articles by email:

Delivered by FeedBurner


RSS FT Commodities News
Copyright © 2016 David Strahan | Ecological Hosting | Cover Design by Darren Haggar Site by JPD Studio