The Next Crisis: Prepare for Peak Oil  

Peak oil seems to be slowly raising its profile in the mainstream media again lately, with the Wall Street Journal providing a recent example - The Next Crisis: Prepare for Peak Oil.

As Europe's leaders gather in Brussels today, they have only one crisis in mind: the debts that threaten the stability of the European Union. They are unlikely to be in any mood to listen to warnings about a different crisis that is looming and that could cause massive disruption.

A shortage of oil could be a real problem for the world within a fairly short period of time. It was unfortunate for the group which chose to point this out yesterday that they should have chosen to do so on the day the Organization of Petroleum Exporting Countries, or OPEC, reported that the effects of the financial downturn had led to a slight downgrade in its forecast for oil consumption this year.

Against the gloomy economic backdrop that Europe currently provides, siren voices shrieking that a potential energy crisis is imminent and could be worse than the credit crunch are liable to be dismissed as scaremongers. Since they are led by Sir Richard Branson, whose Virgin group runs an energy-guzzling airline, and include Brian Souter, who runs Stagecoach, another energy-hungry transport business, they are also at risk of being seen as self-interested scaremongers.

But the work of the Industry Taskforce on Peak Oil and Energy Security shouldn't be disparagingly dismissed. Its arguments are well founded and lead it to the conclusion that, while the global downturn may have delayed it by a couple of years, peak oil—the point at which global production reaches its maximum—is no more than five years away. Governments and corporations need to use the intervening years to speed up the development of and move toward other energy sources and increased energy efficiency.

In the first report from the task force, Lord Ron Oxburgh, a former chairman of Shell, wrote that "It is pretty clear that there is not much chance of finding any significant quantity of new cheap oil. Any new or unconventional oil is going to be expensive." He went on to quote King Abdullah of Saudi Arabia commenting on a new oil find: "Leave it in the ground...our children need it."

The latest report from the Taskforce points out how much modern economies depend on oil, whether for transport, heating or even fertilizer. Demand may have peaked in the developed world but any shrinkage there, is likely to be more than outweighed by the developing countries, with their rapidly expanding appetite for energy to fuel industry needs and consumer aspirations. The International Energy Agency, in its World Energy Outlook report last year, estimated global oil demand, currently running at just over 85 million barrels a day, could reach 105 million barrels a day by 2030. The Taskforce, assimilating various opinions, believes 92 million barrels a day will be the most that global supplies will be able to generate, "unless some unforeseen giant, and easily accessible, finds are reported very soon."

Today's (10th Feb 2010) launch of the second report of the Industry Taskforce on Peak Oil and Energy Security (ITPOES) was rather more high-profile than the previous one. After summaries of the report from other contributors, Richard Branson arrived late to read out a short speech and media interest (informally measured by the rate of camera flashes) picked up; we can expect a scattering of news stories about the report to follow, in the usual places.

As we reach maximum oil extraction rates, the era of cheap oil is behind us. We must plan for a world in which oil prices are likely to be both higher and more volatile and where oil price shocks have the potential to destabilise economic, political and social activity.

Our message to government and businesses is clear. Act now.