The implications of the International Energy Agency’s (IEA) new report, World Energy Outlook 2010, are stark. Its 25-year ‘New Policies Scenario’ projects that it is most probable that conventional crude oil production “never regains its all-time peak of 70 million barrels per day reached in 2006.” In this scenario, crude oil production is most likely to stay on a plateau of around 68-69 million barrels per day. So there you have it. We are now, in all likelihood, living in a ‘post-peak’ world.
The IEA blames a number of factors for this – a combination of supply constraints due to below-ground geological resource limits, and above-ground factors such as political obstacles to fully exploiting existing reserves (such as in Iraq), as well as international commitments to reducing fossil fuel emissions to meet climate targets.
So is this the end of industrial civilization as we know it? The IEA insists - not yet. Despite the peak of conventional oil production, the IEA concludes that total growth in liquid fuels from other unconventional sources – such as tar sands, oil shale and natural gas liquids – will not only make-up for the short-fall in crude, but actually rise as high as around 99 million barrels per day (mbd) until around 2035. Despite this apparent optimism – by this scenario, there are no imminent fuel shortages – we have passed a historic tipping point. In the words of IEA chief economist Fatih Birol, “The age of cheap oil is over.”
The problem is that unconventional sources of oil and gas are far more expensive to get out of the ground and process into usable petroleum, and environmentally problematic. This means that over the next decade, oil prices are likely to become more expensive. Driven largely by industrial growth in places like China and India demand is projected to grow by 36 per cent up to 2035 – at which point, the price of oil will rise beyond $200 a barrel. On the way, by around 2015, we could see price hikes above $100 a barrel.
Unfortunately, a large body of independent scientific literature suggests that the IEA’s favoured scenario is far too optimistic, on a whole range of issues. The Agency forecasts, for instance, that Iraq will be able to triple its production by 2035, and that Saudi Arabia’s production will double. Yet this looks rather unlikely. IHS Cambridge Energy Research Associates (CERA), a leading energy consultancy firm vehemently opposed to the idea of peak oil, nevertheless project that the most we can hope for is for Iraq to increase its output to of 6.5 mbd by 2020 – half of Iraq’s actual target.
As for Saudi Arabia, the late energy investment analyst Matthew Simmons concluded in his extensive book, Twilight in the Desert (2005) that the Saudi oil fields are largely in decline. “Today, the entire field still contains a great deal of crude oil”, reports US energy consultant Michael Lynch of Gerson Lehrman Group, referring to Saudis’ most prized field, Ghawar, responsible for six per cent of the world’s oil supplies – “but it is much harder to get and the production rates continue to fall off.” He characterizes Ghawar as “largely depleted.”
The IEA’s hopes that unconventional oil and gas could rise rapidly to meet expected demand may also be misplaced. “If conventional oil production is at peak production then projected unconventional oil production cannot mitigate peaking of conventional oil alone”, concluded a study by University of Newcastle chemical engineer, Steve Mohr, published in Energy Policy. A Boston University study, concurred, finding that the Energy Return On Investment (EROI) – the energy you get out compared to what you put in – is simply infinitesimal, at around 1:1 or 2:1, compared to conventional oil’s EROI at the well head of 20:1. What about unconventional gas? Although EROI is quite high at inception, the EROI of all gas production rapidly declines as energy costs of compression and distribution to consumers is factored in. An extensive analysis by former Amoco petroleum geologist and World Oil columnist Arthur Berman, who has consulted for ExxonMobil and Total, fundamentally undermines industry forecasts for natural gas production based on shale gas inputs. He argues that actual shale gas production rates are less than half of official industry projections – this is because production decline rates at shale wells are far higher than assumed.
“Many believe that the high initial rates and cumulative production of shale plays prove their success”, says Berman. “What they miss is that production decline rates are so high that, without continuous drilling, overall production would plummet. There is no doubt that the shale gas resource is very large. The concern is that much of it is non-commercial even at price levels that are considerably higher than they are today.”
If the IEA is right about everything, we are in for a rough ride. But if as the above suggests, the IEA is right about us passing the peak of conventional oil in 2006, but almost fanatical in its faith in the prospects for expanded production from unconventional sources, then we are in for an even rougher ride.
The ‘post-peak’ world clearly does not imply the End of the World: but it implies an extremely volatile one, whose dynamics will be difficult to predict. It is a world not of easy abundance, but of declining – and increasingly expensive – carbon-based resources. If we are to develop sufficient resilience to the various price shocks and converging crises of the ‘post-peak’ world, we will need to recognize that they are symptomatic of an inevitable civilizational transition toward an emerging post-carbon age. There is no time for denial. Governments and communities need to start adapting now.