The Staggers

The New Statesman’s rolling politics blog

The age of cheap oil is over

There is no time for denial. Governments and communities need to start adapting now.

By Nafeez Mosaddeq Ahmed Published 12 November 2010 16:37

We are now inhabiting a 'post-peak' world. That is the implication of the International Energy Agency's (IEA) new report, World Energy Outlook 2001, which in 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.

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? Not quite. Or perhaps, 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 continue to make-up for the short-fall in crude until around 2035. But while this means there will be no imminent fuel shortages as such, it also means, 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.

Even if the 'post-peak' world by no means implies the End of the World, it will nevertheless be an extremely volatile one if business-as-usual continues. The convergence of food and financial crises we saw in 2008 was one of the first signs of a strained system. Oil price volatility due to peak oil was a major factor that induced the 2008 banking crash. The collapse of the mortgage house of cards was triggered by 'post-peak' oil price shocks, which escalated costs of living and led to a cascade of debt-defaults. A study by US economist James Hamilton for the US Congress Joint Economic Committee confirmed there would have been no recession without the oil price shocks.

The oil shocks also impacted on food prices. The global industrial food system is heavily dependent on fossil fuels, consuming ten calories of fossil fuel energy for every one calorie of food energy produced. As noted by Australian agricultural expert Julian Cribb in his book The Coming Famine (2010), the six-fold rise in food prices between 2003 and mid-2008 was triggered by escalating oil prices (among other factors), and impacting severely on "farmers' fuel, fertilizer, pesticide, and transportation costs." While "financial pain was high" in developed countries, in the less developed world - from where the developed countries import much of their food - "farmers simply could not afford to buy fertilizer, and crop yields began to slip."

All this was exacerbated by a debt-dependent economic system that systematized the very kinds of dodgy derivatives trading which generated subprime mortgage blowback - with speculators throwing money into futures markets for oil and staple food commodities, rocketing prices even higher. The recession that such price hikes partially inflicted, leading consumption and production to drastically contract, allowed prices to drop. But as economies tentatively recover, as populations grow, as demand rises, the danger that we once again hit the ceiling of the world's oil capacity limits will remain.

So if the IEA is anywhere near right, we are in for a rather rough ride. The volatility of the 'post-peak' world 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.

Dr. Nafeez Mosaddeq Ahmed is Executive Director of the Institute for Policy Research & Development. His latest book is A User's Guide to the Crisis of Civilization: And How to Save It (Pluto, 2010). He blogs at The Cutting Edge.

More from Nafeez Mosaddeq Ahmed

31 comments

Sat, 2010-11-13 04:13 — Stu (not verified)

To combat peak oil, we have to scrap feminism. This evil man hating ideology based completely on bogus assertions is destroying families and putting control of wealth into womens hands. They don't conserve....they spend...and spend....and spend...driving consumerism.....which is great for the economy......but shit for the planet. The whole reason for the bogus domestic voilence industry and it's bogus anti man, anti family laws is to cause the breakdown of families and the removal of mens assetts and income.....transfered to women......who do not save or conserve....the spend. Most women are just like those animals that are conditioned to push a button for their food.....they produce nothing in the way of resources....energy.....etc...but consume everything in greater quantities then men....and raise their children the same. The other thing is that because of feminism.....fewer and fewer men are getting high quality educations...are getting taxed more to pay for all the bogus womens programs....all in a pathetic attempt to make apples into oranges....men are losing the incentive to invest in society...in family....whats the point....it's nothing but a trap...in the end civilisation will collapse because the inventors of it...the innovators...and maintainers of it....have no point in continueing it. Watch when the shit hits the fan....our entire civilisation will be like the titanic.....with the non producing over populating women valued highly....with men expected to sacrifice everything....including their lives.....to keep these whining harpies happy and comfortable and safe. Eventually things have to go back to 1800s lifestyles...the resources just wont be their to maintain anything better....lets see how fast women retreat from wanting jobs when most jobs are just exhausting slavery again. But they will try to maintain their entitled consuming lives as the ship sinks....and push more and more men to withdrawing their services from them...and from society. There is no way our current stupid politically correct bullshit victimology world view can exist without our high tech extremely complicated society...and that can't exist without huge amounts of surplus energy above what we need to etch out a living.

Its already starting.....Hillaries rubbish that women are the primary victims of war.....why...because they lose their husbands, sons, fathers...so a man being killed is not a victim.....his wife and daughter and mother are. The ressession...most of the jobs lost were men.....but the stimulis was directed at creating womens jobs..more no productive naval gazing jobs...paid for by guess who. Well get ready for more of the same.....times 10.

Sat, 2010-11-13 04:55 — shawn (not verified)

Look I'm ALL for getting away from oil...but we simply have no proof we've reached peak oil...we have no idea where it's all at or how much...we don't.

I also would like to error and believe we need to leave a life of less consumption...but there is simply no way of knowing how much oil and at what cost it will come until we KNOW it's scares.

Mon, 2010-11-15 21:00 — Realist. (not verified)

I think it's brilliant that Nafeez has been consistently raising this issue for quite some time. As a conservative, I rarely agree with him on other social and political issues but he is spot on here.

I, however, think that humanity won't make an orderly transition. We've failed to make a rational (and to be frank, quite easy) preparation for this, which many saw coming even in the early 70s. Therefore I think there will be substantial social upheaval and a return of neo-fascism in Europe, of whose seeds we can already witness. There will probably be an all out war with the Middle Eastern Islamic countries and there will be plenty of oilgrabbing, and I expect China to join the game too. They've been colonising Africa for some years now.

Billions will probably die before things level off. I see this as a breakingpoint for the domination and hegemony of China. The Arab countries, without oil, have nothing. And they also face enormous problems with water supply, especially Saudi Arabia which in only 5 years will have a crisis on their hands. Expect mass migrations to the richer, more humid Europe. And awaiting there will be political forces that will make Hitler look like a nanny. Enter chaos, mayhem and genocide.

Sat, 2010-11-13 07:25 — Greg Dyke (not verified)

No it ain't

Sat, 2010-11-13 07:34 — swatantra nandanwar

Yes it is. The duty on petrol should be doubled. That means less car journeys. And its about time we taxed aviation fuel, a 'robin hood tax' on aviation fuel.

Sat, 2010-11-13 07:54 — charlesfrith

It's disconcerting that nobody ever suggests leaving as much in the ground as possible.

Sun, 2010-11-14 09:10 — Alastair McGowan (not verified)

A great article Nafeez. And the comments too, give me the impression that not only governments but civilisation generally has no idea what to do about these converging crises. But de-civilising (decentralising) economically, politically, socially, would appear to be an appropriate starting point. From a systems view civ is a hierarchical one-way street, a manifestation very much resembling a cancer on Gaia. From a human perspective its all consuming organs have now metasticised and made the whole system fragile. We need redundancy (decentralisation) to redevelop resilience, we need to keep developing mass non-hierarchical communication (eg the web). Ie, we need to act local while thinking and communicating globally. But beyond that who can say what to do. We are post-peak everything (already in ecological systemic overshoot) and civ's centralised systems cannot or will not give answers other than 'we only have a hammer therefore the problem is a nail'. Some kind of grass-roots movement offering alternatives is often touted - eg Transition movement - but will Civ permit non-state movements which could usurpt centralised power? Will global wars be the final selfish thrashing of the viscious beast determined never to relinquish control?

Sat, 2010-11-13 11:21 — Nafeez Ahmed (not verified)

shawn: actually our knowledge of how much oil and at what cost is pretty strong. We have pretty much discovered almost all the oil on the planet. The rate of worldwide discovery oil peaked in 1964. Since then discovery rates have declined exponentially, and continue to do so despite the odd find. Findings are also getting less significant.

There's absolutely room for debate on exact chronology, and no one can say for sure how the 'post-peak' world will look. But we can infer the most probable trends and come to some reasonable conclusions. We've been an undulating world production plateau since 2004-5, all the way now. That is unprecedented in the history of world oil production, and is strong grounds to conclude that we have, indeed, arrived. But unfortunately we are totally unprepared.

Wed, 2010-11-17 04:16 — Chris Harries (not verified)

I think we can safely predict that in two to three years the peak oil issue will drown out climate change issue. Not that the latter is not important, but we can avoid responding adequately to climate change whereas peak oil will hit us like a tsunami. There's no avoiding $200 per barrel oil prices, we have to fork out or do without.

Sat, 2010-11-13 12:58 — derrick (not verified)

@shawn Conventional oil production peaked in 2005. How do I know this? Because it hasn't risen since then. Total world oil production peaked in 2008, how do I know this? Because it hasn't risen since then. There's lots of evidence, although most oil companies and OPEC countries won't disclose their real recoverable reserve sizes and they tend to inflate estimates in general anyway.

Sat, 2010-11-13 13:20 — Lou (not verified)

Julian Cribb talking on Coast to Coast radio about world famine, playlist link
http://www.youtube.com/user/zeemonkey10#g/c/49CAAD656970F201

Fri, 2010-11-12 17:27 — Julia (not verified)

Of course the IEA is right. If you recall, the Germans reported in 2007 that global peak oil occurred in 2006:

http://www.guardian.co.uk/business/2007/oct/22/oilandpetrol.news

The freakish thing about the IEA's about-face on Peak Oil is how much their future predictions on energy production relies on either new oil field finds or development of oil fields. Their graph is here:

http://www.treehugger.com/files/2010/11/iea-conventional-oil-production-...

I don't foresee the world finding 6 new Saudi Arabia's--which is what we need to find.

Tue, 2010-11-16 12:56 — firsttimer

Alastair McGowan,

"A great article Nafeez. And the comments too, give me the impression that not only governments but civilisation generally has no idea what to do about these converging crises. But de-civilising (decentralising) economically, politically, socially, would appear to be an appropriate starting point. From a systems view civ is a hierarchical one-way street, a manifestation very much resembling a cancer on Gaia."

Not true.

See the recent issue of New Scientist on cities.

Urban life is actually greener in that concentrated populations can be well served by less infrastrucutre and there is less need for energy use - at least potentially.

We need a more sustainable society, but it will almost certainly not be a rural idyll.

Fri, 2010-11-12 17:54 — Noel (not verified)

The problem is nobody can raise this issue. If oil companies- who are very much aware that the oil is running out- were to start talking about this, they would be sabotaging their own share price. It would be commercial suicide for any oil executive to tell people we need an alternative to oil. How can a politician broach this subject, to tell people there is a problem for which the government has no solution, is not something that politicians do.

It is good of NS to raise this issue, but it is safe to say Dr. Nafeez Mosaddeq Ahmed is at the optimistic end of peak oil predictions, most believe that $200 will come many years before 2035. Which is why it is so crucial for the survival of western society to secure a supply of oil, war with Iran anyone.

Tue, 2010-11-16 14:13 — Richard (not verified)

In the 2nd sentence of the article, shouldn't it be:

"That is the implication of the International Energy Agency's (IEA) new report, World Energy Outlook 2010,"

instead of:

"That is the implication of the International Energy Agency's (IEA) new report, World Energy Outlook 2001,"

Sat, 2010-11-13 18:21 — Will (not verified)

I put together a more detailed analysis of the concept of "Demand Destruction" that Nafeez describes above. For those who wish to read it, go to: http://www.peakoilproof.com/2010/11/demand-destruction-from-peak-oil.html

Fri, 2010-11-12 18:04 — Nafeez Ahmed (not verified)

Thought I'd just point out my agreement with the comments of Noel and Julia above. This particular piece highlights the IEA's support for the little-recognized notion we are now 'post-peak'. But scepticism about the IEA's future production projections based on unconventional sources is totally warranted.

We are likely to see significant short-falls and serious price hikes within the next few years.

And oil is not the only problem: we face the terminal depletion of the world's traditional mineral energy resources within the first quarter of this century. See my piece here:

http://ourworld.unu.edu/en/the-great-transition-beyond-carbon/

Sat, 2010-11-13 18:27 — OrwellianUK

The actual date of Peak will be argued pointlessly for years to come, but what is really important is the general time at which it is no longer possible to INCREASE production to fuel a growth based economy, which uses assumed future 'prosperity' as collateral for todays debts.

That point has definitely been reached - hence the underlying reasons for the 'recession' which is shortly to become a depression: unaffordable energy prices caused by the diminishing of spare production capacity in the oil industry.

There is no going back to what we considered 'normal' before. It wasn't normal. It was a tiny blip in the billion year history of planet earth.

Fri, 2010-11-12 18:13 — Hoz Turner (not verified)

Good piece, and it only confirms what many credible voices have been saying for some time.

I wrote about "unconventional" fuels on my blog, some time ago. They may well be geologically abundant, but they have a low EROEI (Energy Return On Energy Invested) and are nowhere near as "economically recoverable" as conventionals.

Here is a quote from my piece:-

"The Times reported "Fresh sources of oil equivalent to the output of four Saudi Arabias will have to be found simply to maintain present levels of supply by 2030, one of the world's leading energy experts has said". Now, Saudi Arabia holds 20% of the worlds' proven oil reserves and is the largest petroleum exporter (source: OPEC). Is it no wonder that oil companies are in a desperate bid to head to places like the Arctic in the attempt to meet this seemingly unlikely target of four Saudi Arabias? The Arctic could well have a lot of a lot of oil reserves, although the issue of costs of extraction, refinement and transportation from such a region remain an issue. Indeed, just as in the case of Venezuelan Orinoco Oil, the Arctic may well only have a very limited amount of economically recoverable oil. Thus, it does not seem like the answer to the worlds' energy needs. Unconventional sources, such as the Canada Oil Sands also come with cost-limitations and risks. The post-peak world also spells the end of economic growth for a very long time to come. I say post-peak because, as some people (such as Mike Ruppert) have already claimed the world peaked in oil production in 2006 - others dispute that and claim we arrived at the peak (or plateau) recently and argue about the length of the plateau."
http://hozturner.blogspot.com/2010/10/peak-oil-and-world-economy.html

Sat, 2010-11-13 18:47 — Erik Larson (not verified)

"There is no time for denial. Governments and communities need to start adapting now."

I would like to see more info on options for adapting. Improving efficiencies and changing systems and mechanisms to reduce dependence on oil are a good place to start; what are the ways to do this, and are there estimates on how much oil use can be reduced if all were implemented, factoring in the world's rising energy demands?

Unconventional sources of oil are mentioned, but I didn't see biofuels mentioned; research into manufacturing hydrocarbons w/ bacteria or algae is showing great promise for large scale production.
http://www.economist.com/node/17358802?story_id=17358802

Also, this issue is primarily about energy, not about oil, though oil is used in the production of fertilizer, plastic, etc. Electricity can be used to power most machinery- the cost of solar has been coming down and efficiencies have been improving, exponentially, over the course of its history. Several companies can now produce photovoltaic panels at $1 kw. Laboratory experiments have reached 40% efficiency (10% is now standard) and other lab breakthroughs indicate efficiencies over 80% may be possible. Concentrating solar farms are considerably cheaper- large scale ones have gotten close to 10c/kw/hr and other systems can do it for even less. http://peswiki.com/index.php/Directory:Concentrated_Solar_Power And there's also wind, wave, tidal and geothermal.

Currently, the US and other govts subsidize the dirty energy industry, and the true costs to society and the environment- war, pollution, etc.- are not factored in. If subsidies were revoked and taxes imposed to offset the damages, these revenues could be invested in developing non-destructive and peace-building renewable energy sources and educating the public, and any immediate increased cost to consumers would
have the benefit of reducing demand for dirty energy and increasing demand for the shift, which must happen if our children and grandchildren are to avoid catastrophe from conflict and climate change.

Sat, 2010-11-13 19:06 — Nafeez Ahmed (not verified)

perhaps i could rather cheekily mention my book at this stage?

http://www.plutobooks.co.uk/display.asp?K=9780745330549&

it goes into some detail looking at the technical potential and practicalities of renewable energy sources. I tend to favour more decentralized systems, for which there are real models of success (the Borough of Woking in Surrey, which produces 135 per cent of its electricity from renewables), backed up by a number of strong technical studies too.

but this is not just about energy. it's about the symbiotic link between the social, political, economic and ideological form of our civilization and how this requires activities which are predatory, exploitative and cannabilistic, with respect to our environment and natural resource base. on that note, we need to think clearly about long-term structural transformation, something i also discuss in the book.

Fri, 2010-11-12 18:32 — Arthur Rimbaud (not verified)

The transition needs to be even deeper than is here implied. Mankind has allowed rampant corruption and greed filled ignorance to lead us towards this impending crisis. It is a crisis of consciousness as much as it is of illusions if infinite oil abundance.

Sat, 2010-11-13 19:28 — Hoz Turner (not verified)

Dr. Robert L. Hirsch (http://en.wikipedia.org/wiki/Robert_L._Hirsch) has stated that the Peak Oil problem is not inherently an "energy problem". It is, specifically, a "liquid-fuels problem". He has also stated that many engines and industrial components cannot be easily or cheaply replaced with electric-fuel systems.

Dr Hirsch has done an interview with Bruce Soltani, and he raises some important points concerning the looming energy crisis:-

http://www.youtube.com/watch?v=qcZI73cvr1g&feature=related

Fri, 2010-11-12 19:31 — michaelpetek

What suggests itself is that we have to forget about industrial development and go for re-agrarianisation with "voluntary" population collapse.

That means, to cut the population to a sustainable 2 billion, everyone must stop having children.

Fri, 2010-11-12 19:47 — xraymike79 (not verified)

Born and bred into a society where pushing a button results in immediate results, immediate satisfaction, and no requirement for thinking about the elaborate extraction and production system for delivering such energy has created a blind spot in the population. It's sort of like an animal in a laboratory cage who has been conditioned to hit a button for his food.
The idea of Peak Oil is still an unknown concept to the unwashed masses. With peak everything occurring, our entire belief system and expectations of life are going to be turned over.
Can we overthrow the destructive thinking of neoliberalism in favor of a more egalitarian, cooperative society. The prospects for not doing so are terrifying.

Tue, 2010-11-16 17:31 — David Vinter (not verified)

But politicins NEVER ask, is it too little oil, or too many people? The earth would operate just fine with a max of a one billion population. Agriculture could operate on surplus vegetable oil,[rape oil is fine in diesels]. At least China recognised that it was growth by population control, otherwise it would by now be in the throes of mostrous starvation.

Sat, 2010-11-13 23:42 — Erik Larson (not verified)

"this is not just about energy. ... on that note, we need to think clearly about long-term structural transformation"

I agree, and I'll check out the book- I'm very interested in developing sustainable and just society. There are alternatives to destructive practices that have been proven to work better- problems we face in implementing them include powerful, entrenched and selfish interests, institutional and ideological inertia, and lack of awareness on the part of the public. I hope the book outlines solutions to these problems as well.

Sun, 2010-11-14 00:55 — Iroquois (not verified)

The shortages, and consequent social, economic, structural and systeic shocks will arrive. The question is how will we prepare? Will we leave the resources of the world in the hands of a tiny elite? Will we do nothing and watch the resulting horrors? We we do our collective best and create a sustainable world with equality of resource for everyone?