Special Report: Peak Oil

COP15 Failure or Peak Oil Success

Climate change is too complicated and controversial to form the political basis for worldwide CO2 emissions cuts. The case for peak oil is much clearer and harder to dispute.

By Andrew McKillop
Published November 18, 2009

Since late summer, several OECD country leaders in the G20 group have stridently backed their proposals for radical cuts in global CO2 emissions, by waving the spectre of 'catastrophic climate change' if we do not achieve rapid, massive cuts in CO2 on a worldwide and uniform basis. President Obama, along with leaders including Gordon Brown, Nicholas Sarkozy and Angela Merkel, have proposed CO2 emissions cuts up to 40% by 2020 and 80% by 2050 from a 2005 baseline.

To be sure, there is a basic undisclosed driver for this intense concern for the planet and well-publicized fears of Biblical-style floods 'by the end of the century'. The basic driver is tight oil supply, high oil prices, and small likelihood that oil prices will follow natural gas prices into 'sweet and low' territory.

The near fantastic CO2 emissions cuts proposed by several OECD leaders for worldwide application might perhaps be possible for the OECD group, especially if OECD total energy demand shrank on a long-term annual basis. They would however be totally impossible in the fast-growing economies of China and India, and almost certainly Brazil, Russia, the GCC countries and elsewhere.

Chinese, Indian and other APEC leaders have now underlined this, loud and clear. Apart from the looming issue of how credible, or not, global warming really is and what role CO2 has in climate change, per capita emissions of GHG are so much higher in OECD 'postindustrial' countries, than in industrializing China and India which export energy-intense industrial goods to the OECD, that common sense says the OECD 'hyper consumption' economies should cut their emissions first and most.

The role of 'exported energy demand, exported emissions' represented by the OECD group importing energy intense industrial goods from China and other industrializing emerging countries, adds more strength to the non-OECD countries balking at OECD leadership proposals for extreme rapid, uniform and worldwide CO2 emissions cuts.

Exaggerated oil and gas dependence

Per Capita Energy Consumption, Oil and Gas, 2008
Year: 2008
(barrels per capita per year)
(barrels oil equivalent per capita per year)
OECD 14.5 barrels/capita/year 8.9 barrels equiv/capita/year
EU27 11.5 barrels/capita/year 7.6 barrels equiv/capita/year
Japan 14.3 barrels/capita/year 4.8 barrels equiv/capita/year
China 2.4 barrels/capita/year 0.3 barrels equiv/capita/year
India 1.3 barrels/capita/year 0.2 barrels equiv/capita/year

Average annual consumption data, approx. Sources include BP Stat Review of World Energy

This skewed distribution of world fossil energy consumption, and extreme energy intensity in the OECD countries explains the basic response from lower income and lower energy countries, to OECD calls for massive worldwide cuts in CO2 emissions.

It also helps explain much trumpeted details of worldwide CO2 emissions by country: because China and India consume so much lower cost coal their CO2 emissions, for the two largest population countries on earth, are able to rival US or European country emissions. Given that China obtains about 75% of electricity from coal burning, and India about 50% (like the USA) fast growing electric power production in China and India, growing car fleets, increasing transport dependence in the economy and other facets of conventional economic growth lead to fast growing CO2 emissions of the two countries.

The basic retort by emerging and developing countries to strident calls for rapid and massive cuts in CO2 emissions is simple: If there is such urgency, if the 'catastrophic threat' of global warming is as bad as most OECD leaders like to repeat at the microphone, the OECD countries can and should act first and most.

GHG emissions per capita are directly linked to energy intensity, making OECD per capita emissions so much higher, because of much higher energy consumption. As noted above, the 'energy balance of trade' is also heavily in favour of the OECD 'postindustrial' countries importing energy-intense industrial goods from emerging economies, as well as energy-intense raw materials and primary products from low and middle income countries.

This further raises per capita CO2 emissions by the OECD countries, and lowers real per capita emissions in the emerging and developing countries.

Depending on OECD country and its trade structure, embodied energy in industrial goods and raw materials imported from emerging and developing countries can attain 1.5 to 2 barrels oil equivalent per capita, per year. This energy consumption, and related GHG emissions, is presently not counted as OECD source.

Not Talking About Peak Oil

OECD leaders go far out of their way to never, ever mention Peak Oil. This in fact is the biggest real world driver for worldwide Energy Transition away from CO2 emitting fossil fuels. Due to limited world oil reserves and production capacity, moving away from fossil fuels is necessary, whether or not there is climate change or global warming.

Complicating this, world pipeline and LNG gas supplies are now entering a period of large or massive increase, depending on country and region, perhaps able to last 5 years or more. While oil can get very expensive, natural gas will likely remain cheap, and international traded coal will likely remain low cost on delivered energy terms.

For OECD leaderships seeking rapid transition away from oil, and cutting CO2 emissions, natural gas is cleaner burning, with lower emissions than oil or coal. This is a rational energy strategy - oil substitution by gas - for the short term. Waiting for the soft energy and electric car revolution will however be long-haul. Growing the role of non-hydro renewables in the energy mix to anything above 5%, by 2030 without also cutting global total energy demand every year by well above one percent, will be costly, complex and slow.

Setting policies for non-hydro renewable energy, including wind and solar energy, replacing or substituting large proportions of current fossil fuel demand implies long-term, massive funding, and the related industrial and technical mobilization for the task. To date, no such financing and frameworks exist. OECD leaderships seemingly imagine that 'the market' can be relied to carry out and sustain this massive, long term, high cost task.

More rationally, more realistic and at least as necessary as acting to limit climate change, substituting the loss of world oil production capacity due to Peak Oil through the next 20 years itself sets massive challenges.

Here again, however, we enter the realms of politically correct censorship, because until late 2009 the IEA and other energy agencies, and most of the major oil corporations stood together in officially forecasting no possible shrinkage in world oil supply, and perhaps 25% or more supply growth over the next 20 years.

Periodic market shortfalls, yes, but not long-term declining supplies - fixing 90 Mbd as the maximum possible oil output the world can achieve. This united front is breaking up, like Arctic glaciers, with Zero Petroleum Growth of supply to 2030 now being hinted at, if not openly stated.

Peak Oil analysts present much more radical scenarios, based on real world reserve history and production statistics, extending to a loss of up to 25 million barrels/day (Mbd) of production capacity, around 30% of present supply, by 2030. Under these scenarios, world oil production, and therefore demand could fall to 60 Mbd or so, by 2030.

Entering a period where annual increase of world oil demand is no longer possible, and demand only decreases, is as economically catastrophic in its implications, as mediatic rantings on global warming catastrophe indulged by some OECD leaders, in the run up to the COP15 'climate summit' of Copenhagen.

Doing nothing about the real threat of oil decline and high prices to the economy and society, and possible repeats of 'military adventure' in the Mid East and Central Asia, to assure oil supplies, is a bigger threat than of losing face from COP15 failure.

Biting the bit, and facing this uncomfortable reality without the fig leaf of a scientifically shaky and histrionic 'climatic apocalypse' as the prime mover for Energy Transition is the best outlook from the failure of COP15 to achieve an impossible consensus. In the coming weeks, as this failure becomes more certain, we will find out which OECD leaderships care to face the reality of peak oil decline in world supply.

Action can focus the creation of multilateral agencies, frameworks and funding for global energy transition on a long-term basis.

Why Ignore Peak Oil?

The reasons stretch back at least 30 years to the oil shocks of the 1970s. The complete and total dependence on mostly imported oil of most major OECD consumer societies was heavily underlined by chaotic and unsuccessful attempts to keep the economy on the rails. The supposed link between oil prices, economic recession, and inflation were established at that time in the mindset of OECD leaders who, like the Bourbons, have forgotten nothing, and learned nothing since.

Speaking at Jackson Hole in August 2009, The US Fed's Ben Bernanke solemnly warned that oil prices are already uncomfortably high for the US economy. He went on to say oil prices reaching $100 a barrel would be as serious a threat to US economic recovery, as prices hitting $145 a barrel were in 2008 and that he could raise interest rates, despite the impacts of this on the recovery, if they went above his new $100 'pain threshold'.

This merely states the obvious, but adds the interesting possibility that the US and other world economies are now more sensitive, not less sensitive, to high oil prices. Support for this argument is not lacking in energy economic studies.

In 2007-2008, however, the US economy soldiered along quite a while with prices above $125 a barrel and little evident inflation, albeit with constantly falling growth rates by quarter. Whether oil prices, or the subprime debt bubble and Wall Street 'exuberant' trading of nearly-virtual financial derivatives in vast quantities were the real cause of the 2008-2009 crisis remains to be elucidated, but Bernanke's new oil price limit leaves alternate theories almost ignored.

In any case, the Keynesian recovery masterminded by Bernanke and the US Fed has included the printing, borrowing, lending and engaging of truly vast sums, probably exceeding $3750 billion for the US economy alone, for 2008-2010. The US Federal budget deficit in 2009 will probably attain or exceed $ 1600 billion, around 12% of GNP. We can note that even at Bernanke's fear price of $100 a barrel, US oil imports costs would struggle to achieve a yearly level above $ 300 billion.

This tends to suggest that oil prices, alone, are not the bogeyman they are painted, and also could suggest that any future rise of oil prices and US oil import costs could (at least in theory) be covered by the Keynesian print-and-forget route, in the event of no other sustainable strategies being available or being ignored due to 'market thinking' replacing planning and organization.

One thing is sure: oil prices remain hard-wired to economic and political decider mindsets as a dire threat to economic growth - this growth always featuring the growing consumption of oil dependent and energy intensive products and services.

Unsurprisingly, oil demand tends to increase anytime there is 'classic' recovery. Just as unsurprising, oil prices rise with demand growth and this process shows higher and higher positive feedback in an ever shorter feedback loop. The basic cause is peak oil, reserve depletion, higher costs and longer lead times for raising oil supply capacity, as well as environmental, geopolitical and other causes.

As a growing number of well-documented web sites (such as The Oil Drum) show, the correlation of declining oil supply growth and higher cost/longer lead times for supply expansion, with oil prices, is high and positive. Any hope that Bernanke or others might have for oil prices staying 'moderate' is likely to be dashed - if there is sustained conventional and classic economic recovery for any period of time.

To be sure, the fond hope is that 'green energy', notably the non-hydro or 'new' renewables, and to some extent energy saving could quite quickly replace or economize oil in the economy. Selling this to a recalcitrant mass consumer public totally hooked on oil-based consumer goods and services supposedly requires the big stick of Climate Apocalypse fantasy, rather than informing the same public of peak oil reality.

In turn, this makes the likely failure of the COP15 'climate summit' problematic for the image management of OECD political leaderships, terrified of losing face. Likely the most basic reason for studiously ignoring peak oil and making sure any comment or data on this subject can be contradicted or denied derives from the real world, real economy dependence on oil of the 'postindustrial' consumer societies of the OECD.

Today, compared with 1979, this remains high, even if oil's part in total energy consumption has slipped, as gas, coal, hydro and nuclear energy, and to a small extent the non-hydro renewables have reduced the percent share of oil.

However, this sidelines one major fact which can be measured. Total oil consumption, and total oil imports of the OECD economies, have in general and on average increased since 1979, in some cases doubled (100% growth), sometimes in less than 15 years. Those countries that have decreased their oil consumption in absolute terms are the minority.

This reinforces the careful ignorance of oil dependence and the reality of peak oil, but in no way prevents (in fact guarantees) the coming progressive and long-term reduction in world oil supply. Replacing or substituting oil with 'other energy sources' will soon need open and real debate, when the sideshow of Global Warming apocalypse collapses from lack of public conviction.

Moving Forward

With the failure of the COP 15 conference now almost programmed in advance, but oil prices showing little signs of following traded natural gas prices into 'sweet and low' territory, the time may be ripe for OECD leaderships to bite the bullet on coherently moving to Energy Transition.

The tapering down of world oil export supply, called export 'offer', may be faster than world oil production capacity decline. Conversely world gas supplies face a short-term and large scale bulge. Coal supplies on the same horizon are limited by export and transport infrastructures, not reserves. The net effect of oil being shortest-fuse energy resource, this can only refocus geopolitical rivalry and tension to the Middle East and Central Asia, and African oil exporter countries.

IEA scenarios for 2030, we can note, are forced to claim that OPEC could or might produce 55 Mbd by 2030, quite close to 100% above present production, simply to balance out demand forecasts, with supply.

This will again refocus and concentrate oil drive tensions and rivalries in the above cited regions. Believing in the above cited IEA miracle, OPEC led by the OAPEC group practically doubling production in 20 years, is comparable with believing in Al Gore stories of coming global warming tsunamis, and Biblical Floods which can sweep all before them.

OECD leaderships can now begin to blend in real-world facts to their energy speeches, with the same target: mobilize their consumer publics to accepting energy saving and non-oil energy sources on a constant and long-term basis. Enabling transition from oil, followed later by gas and coal, is the most serious and basic challenge faced by leaderships in the 'postindustrial', but not post-oil or post-carbon consumer societies.

Facing this reality is one of the largest tests of leadership quality that we face in the short term.

Energy Transition is both a policy challenge, and a necessity that will not go away. While we still have time, this challenge should receive the attention it needs, not hidden behind a cloud of global warming rhetoric. Failure of COP15 conference will therefore be the chance for a new departure, facing real world limits, and moving the world forward.

Andrew McKillop is a writer and consultant on oil and energy economics. Since 1975 he has worked in energy, economic and scientific organizations in Europe, Asia, the Middle East, and North America. These include the Canada Science Council, the ILO, European Commission, Organization of Arab Petroleum Exporting Countries, the UN Economic and Social Commission for Asia and South Pacific, and the World Bank. He is a founding member of the Asian chapter of the International Association of Energy Economics. He is also the editor, with Sheila Newman, of The Final Energy Crisis (Pluto Press, 2005).


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By canbyte (registered) | Posted November 20, 2009 at 19:58:56

Best article i've seen for ages. Scoop for the Hammer. I'm surprised no greenies have stamped hobnailed boots all over it while running on their way to forums and petitions to support Copenhagen. I'd like to think Copenhagen really is preordained dead but given our gummerment's minority status and electibility concerns, I need more evidence you are right. There's growing blogosphere angst about the treaty being too draconian, undemocratic, which could render any concern about peak oil moot - no economy left to suffer.

As for peak oil, it would be a pleasure to ponder a real problem for a change, instead of trying to get out of the way of all the manipulators trying to skim our financial future out of our pockets. Perhaps your headline should have read: COP15 Failure = Peak Oil Success, which i think is what you've tried to suggest.

Q. Drillers have been poking many tens of thousands of holes in Canada (per year) looking for oil/gas but is the same true of the Saudis? I know the Saudis have been pumping more and more saltwater into their oilfields to increase recovery but why can't they do the same as our energy trusts did a few years ago before James Flathead, our finance miserator ruined the biz with his anti trust legislation?

Q. Just because natgas is bulging now, should we still be squandering this precious clean fuel to produce dirty sludge out of our tar sands?


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By Undustrial (registered) - website | Posted November 25, 2009 at 14:03:40

Resorting to natural gas as an alternative to oil or coal is kinda like resorting to pretzels as an alternative to potato chips. It isn't much cleaner, it doesn't produce much less carbon, it isn't any more abundant (at least, after eight decades of burning it off at the wellhead) and it doesn't produce vehicles, machines or power-plants that are any less dependent on massive inefficient centralized delivery systems.

For that matter, the whole global warming vs. peak oil argument is a little like arguing whether it's more important that you might get heart disease or diabetes from your horrendous case of obesity. Interesting debate, but a little irrelevant.

We all know what needs to be done, whichever kind of oily energy addiction we're talking about. And yet, everyone rushes from ridiculous fad diet to fad diet (Atkins, biofuels etc) in a search for a way to treat symptom after symptom without addressing the root of the problem or meaningfully altering their lifestyle.

Now go ride your bike.

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