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Peak oil before 2020 a 'significant risk', say experts

David Strahan

8th October, 2009

A new report highlights how woefully unprepared the Government is for a looming peak in oil production

There is a 'significant risk' that conventional oil production will peak before 2020, and forecasts that delay the event beyond 2030 are based on assumptions that are 'at best optimistic and at worst implausible'.

So says a major new report that puts the excitement over recent ‘giant’ oil discoveries into perspective and directly contradicts the British government’s position. It also warns that failure to recognise the threat of peak oil could undermine efforts to combat climate change.
 
The report, entitled 'Global Oil Depletion: An assessment of the evidence for a near-term peak in global oil production', comes from the UK Energy Research Centre, an independent group funded by the Research Councils, whose mission is to resolve contentious technical issues and deliver clear guidance for policymakers.

This report is significant because it is the first dispassionate academic attempt to reconcile the highly polarised debate over whether and when oil supplies will start to decline, yet its conclusions chime with a growing number of recent forecasts that warn of an early peak in production.

'This is an important conclusion,' says Steven Sorrell, of Sussex University’s Science Policy Research Unit, and lead author of the report, 'because the worst impacts of oil depletion could come sooner than the worst impacts of climate change. Both are important, but depletion has been largely ignored by policymakers'.

What's the evidence?

The UKERC set out to assess the evidence that conventional oil production will be limited by physical depletion of the geological resource, as opposed to ‘above-ground’ constraints such as a lack of investment or resource nationalism, before 2030.

After reviewing the data, they found there were large uncertainties, and that peak oil forecasting techniques were often too pessimistic about future supply. Yet they concluded the information was good enough to assess the risk of global oil depletion, and that the peak of conventional production was 'likely' before 2030.
 
The main reason is the relentless treadmill imposed on the industry by the falling output of most existing fields, as a result of falling reservoir pressures and a long-term decline in the size of the fields being discovered. The UKERC found that total production from existing fields is declining at 4 per cent or more each year, meaning the world has to add 3 million barrels of daily production capacity annually just to stand still, equivalent to developing a new Saudi Arabia every three years. This will present 'a major challenge, even if ‘above-ground’ conditions are favourable', says the report.

Once the economy comes out of recession, satisfying demand growth would usually require another 1 million barrels of daily production capacity each year.

The report also puts the breathless reporting of recent discoveries in the Gulf of Mexico and offshore Brazil into a more sober context. BG’s Guara field, discovered last month, contains 2 billion barrels of recoverable oil and was lauded as a ‘supergiant’, prompting some pundits to claim such finds would banish peak oil for decades.

However, the UKERC argues that each additional 1 billion barrels delays peak oil by less than a week. To postpone the peak by a year would take 7 times what was discovered in 2007. 'We’re unlikely to explore our way out of this,' says Sorrell.

Heads in the sand

The report also implicitly challenges the British Government’s position on peak oil. In response to an online petition last year, the Government insisted there is enough oil for the 'foreseeable future', and that reserves will meet rising demand until 'at least 2030'.

The Government also refuses to conduct a risk assessment that peak oil might come before 2020, despite maintaining a comprehensive risk assessment and rapid response network for an outbreak of smallpox, which it admits has already been eradicated.

But the UKERC concludes the risk of a conventional peak before 2020 is significant and, given the long lead times needed to develop alternatives, requires serious consideration.

'If you don’t even recognize the problem you will inevitably be unprepared,' says Sorrell. 'The Government needs to wake up to oil depletion and start planning, because it’s going to mean major changes infrastructure, investment and lifestyles'.

The Government bases its view on the work of the International Energy Agency, which forecasts conventional oil will peak in 2020, but which argues that rising output from non-conventional sources, such as the Canadian tar sands, will push the overall production peak out to 'around 2030'. The UKERC report does not address the potential for non-conventional oil, but the numbers in the report show how unlikely it is that they will defer the peak for long, because of the sheer size of the hole left by conventional depletion.

The UKERC report shows that two thirds of current oil production capacity – 60 million barrels per day - must be replaced by 2030 before allowing for demand growth. By contrast, non-conventional resources are expensive and difficult to produce and unlikely to expand by anything like that much. One of the most optimistic industry forecasts for tar sands production, for instance, from energy consultancy IHS CERA, shows output reaching 6.3 mb/d by 2035.

'But by then we’ll need to add around ten times that much capacity without allowing for any growth in demand,' says Sorrell, 'so it’s very hard to see non-conventionals riding to the rescue. We haven’t demonstrated it in the report, but I think it’s likely that conventional peak oil will turn out to be peak oil full stop'.

Peak oil: bad for climate change?

As the UN climate talks in Bangkok reach their climax tomorrow – the penultimate round before the crucial Copenhagen summit in December - the UKERC warns that running short of oil may actually be bad for global warming. The report notes that climate policy assessments generally make no reference to oil depletion and frequently rely on optimistic oil price assumptions, which Sorrell says are unjustified. Further oil price spikes could tip the economy into recession again, sapping climate change efforts to mitigate climate change of political will and financial resources.

Peak oil could also hamper attempts to mitigate climate change by creating a strong incentive to exploit vast deposits of carbon intensive non-conventional oils – even though they are unlikely to fill the gap in time.

The report comes amid a growing consensus that the oil supply will fail to meet demand far sooner than 2020 for ‘above-ground’ reasons. Both the IEA and Christophe de Margerie, chief executive of Total, have warned of a supply crunch in the next few years as demand recovers, because of shrinking investment in new production capacity following the collapse of the oil price. Bankers Morgan Stanley recently predicted that tightening supply will push oil price back up to $105 per barrel by 2012, while analysts Douglas-Westwood have noted that an oil price of more than $80/bbl sends the US into recession.

Welcome words

The UKERC report has been broadly welcomed by depletion experts, who urged the Government to act on it. Christopher Patey, chairman of the Oil Depletion Analysis Centre, and a former executive with Mobil, said 'this excellent report exposes the British Government’s position on peak oil for what it really is – obstinate denial in the face of the growing evidence, and a reckless gamble on all our futures'.

Jeremy Leggett, convenor of the UK Industry Taskforce on peak Oil and Energy Security, said:
'Having rejected the concerns of a cross-section of British industry about a peak in global oil production in the next decade, hopefully the government will listen to the concerns of the country's premier energy research establishment.'

'This is the right report at the right time,' said Bernie Bulkin, Energy and Transport Commissioner at the Sustainable Development Commission and former chief scientist for BP, who introduced the report at its launch yesterday. 'The Government should look at how we can run our economy effectively and efficiently without oil,' he said in an interview. 'It means electrification of road transport, and then making electricity zero carbon'.

A spokeswoman for the Department of Energy and Climate Change said: 'Government met with UKERC in July to discuss their initial findings – we’re interested in their report and will assess their conclusions closely'.

David Strahan is author of The Last Oil Shock, a trustee of the Oil Depletion Analysis Centre, and served on the Expert Group of advisors to the UKERC report.

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