After the oil crunch?

The end of cheap oil helps renewables, but makes far dirtier alternatives viable. A low-carbon futur

There are two competing explanations for today's high oil prices. One sees the price rise as the result of a temporary imbalance between supply and demand, exacerbated by a weak dollar and a bubble of speculative commodities trading. Fix these problems, adherents suggest, and the price can return to previous low levels, allowing business to continue as usual. The other sees the current price spike as symptomatic of a much deeper crisis, one that could end life as we know it in the rich, consuming west as global supplies of cheap oil begin to run short, not temporarily, but for ever. As Chris Skrebowski, editor of the UK Petroleum Review, puts it: "This is what I would describe as the foothills of peak oil." An imminent oil peak is no longer just a fringe theory: increasing numbers of experts view the topping out point as very close, if not actually upon us. "Easy, cheap oil is over, peak oil is looming," warns Shokri Ghanem, head of Libya's National Oil Corporation. If they are right, we are about to move into a very different world.

But while the reality of global warming is now nearly universally accepted, the potential problem of peak oil is still widely doubted or ignored. There is no official policy for a smooth transition to a post-oil future; the British government blithely reassures us (in response to a peak oil petition on the No 10 website) that "the world's oil and gas resources are sufficient to sustain economic growth for the forseeable future". Both the International Energy Agency and the US government issue projections based on oil reserve estimates which many geologists and oil industry insiders suggest are grossly inflated. This complacency smacks of a fatal combination of ignorance and denial. Recent oil production figures suggest that the peak oil crowd is winning the debate. For the past three years world crude production has flatlined at about 86 million barrels per day, despite a rapid upward trend in prices. This lack of increase in supply, combined with rapidly rising demand in countries such as India, China and Brazil, lies at the root of today's soaring prices.

Unlike the oil price shocks of the 1970s, caused by political factors, the present crisis is caused by something far more intractable even than the Middle East conflict - geology. David Strahan calls this "the last oil shock" in his book of the same title; the one after which supply and demand can never be rebalanced and the world totters towards economic catastrophe. As Strahan points out: "For three years the oil supply has been a zero-sum game in which if one country consumes more, another has to consume less."

In this case, unusually, it is the rich world which is losing out: countries which are members of the Organisation for Economic Co-operation and Development (OECD) have seen crude oil use falling for two years, as price rises choke off demand. Indeed, what we do here no longer seems to matter much: car sales in Russia leapt by a staggering 60 per cent last year, while new vehicles flooded the roads in India and China. With oil massively subsidised in many Opec countries, some of the strongest growth in demand is now coming from oil producers themselves. Whether the actual moment of peak oil is now, next year or in five years' time is not what matters most; what defines this new era is the conclusive end of cheap oil. Never again will oil be bought at $20 a barrel, as it was through much of the 1990s. Instead, we will see crude prices rising steadily - if not uniformly - towards $200, $300 and $400 a barrel in years to come.

The oil crunch has created a crisis for western leaders. George Bush made two humiliating trips to Riyadh to beg the Saudis to pump more. He was rebuffed: whether the Saudis can't or won't remains unclear. In France, President Sarkozy has had to contend with striking fishermen, and in Britain the hauliers are blocking roads and refineries once again. Gordon Brown's absurd response was to ask North Sea producers to increase output - despite the fact that offshore production peaked in 1999 and has since fallen by 40 per cent. The hauliers' protests have now spread to France and Spain. All seem to believe that the rising cost of energy should be borne by someone else, not them. They huff and puff to no avail - the rules of geology cannot be broken.

But peak oil may not be quite the crisis the catastrophists predict. So far, the price hike has been an environmental boon: the rise in fossil fuel prices has made emitting carbon more expensive, helping to make up for the more or less total failure of world climate change policymaking. Higher oil prices have made renewables more competitive, spurring rapid developments in wind and solar power: installed capacities of each are now doubling every two years. In the US, SUV sales have slumped - General Motors may now drop t he Hummer and focus production instead on its new plug-in electric hybrid model, the Chevrolet Volt. The aviation industry has seen its profits evaporate, with many analysts declaring that the era of cheap flights is over. All of these should be causes for celebration. In global warming terms, oil at $139 a barrel has been the best thing to happen for a decade.

Betting on failure

But high oil prices cannot substitute for proper carbon regulation indefinitely. Even as the "green tech" sector soars to new heights - $100bn flooded in last year - equally big investments are being ploughed into the dirtiest fuels of all: unconventional oil and coal. An upcoming report from the WWF and the Co-operative Insurance Society suggests that oil sands in Canada are three times as carbon-intensive as conventional oil, while oil shale in the US Rockies may be up to eight times more so. And these reserves are vast, estimated at 1.7 trillion barrels for Canadian oil sands and up to 1.5 billion barrels for US oil shale. Proven reserves of 174 billion barrels in Canada place the country second only to Saudi Arabia, which claims 260 billion barrels.

But extracting this oil is environmentally devastating. Some open-cast mines in Canada's oil sands are so huge they can be seen from space, and they have already laid waste to vast areas of fragile boreal forest. This is not oil that can be drilled easily out of the ground: each barrel requires the extraction of two tonnes of tar-soaked sand, which is then washed with hot water to remove the hydrocarbons, using both gas and water in massive quantities. Current operations use enough natural gas to heat a quarter of Canada's homes, according to the WWF/CIS report, while 300 million cubic metres of water are diverted from the nearby Athabasca river. Ponds to hold the resulting toxic sludge measure up to 50 sq km each.

Coal-to-liquids technology is also being ramped up worldwide, using the Fischer- Tropsch chemical process to produce synthetic petrol, diesel and kerosene from solid coal - but again this is vastly more carbon-intensive than pumping conventional oil, doubling CO2 emissions. The Economist suggests both oil shale and coal to liquids become competitive with world crude prices at $70 a barrel or above. With high prices likely to continue, all the majors are moving rapidly to invest in this area.

Even after making record profits on the back of high prices - $27bn for Shell and $40bn for Exxon-Mobil in 2007 - the evidence suggests that oil companies are moving away from renewables and instead "recarbonising" by ploughing billions into unconventional oil as they run down their conventional reserves. In May this year, Shell pulled out of the London Array, expected to be the world's biggest wind farm. Instead, the company plans to double its output from the Canadian oil sands, and is being closely followed in investing in unconventional oil by BP, Exxon-Mobil and ConocoPhillips. However, as the WWF report asserts, these companies are exposing their shareholders to a significant investor risk: essentially they are betting that world policy failure on greenhouse-gas regulation will continue indefinitely.

If policy improves, high carbon prices will likely make dirty fuels uncompetitive when compared with renewables, and investors in solar, wind and other clean energy sources will win out at the expense of the oil majors. This has to be the best-case environmental scenario: that high oil prices continue, and that the pricing of carbon in world markets chokes off investment in dirty replacements. Then a true transition to a post-oil, low-carbon future becomes a real possibility. But this scenario depends on policymakers having the vision to squeeze fossil fuels further even as restive populations protest at losing their foreign holidays and big cars. As David Strahan concludes: "All it needs is some brave political leadership. What a terrifying thought."

Mark Lynas has is an environmental activist and a climate change specialist. His books on the subject include High Tide: News from a warming world and Six Degree: Our future on a hotter planet.
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The humbling of Theresa May

The Prime Minister has lost all authority. The Tories will remove her as soon as they feel the time is right.

Being politicians of unsentimental, ruthless realism, the Conservatives did not linger in the grief stage of their collective disaster after the general election. Disbelief, too, was commendably brief.

Currently, their priority is to impose some sort of order on themselves. This is the necessary prelude to the wholesale change that most see as the next phase in their attempt at recovery, which they all know is essential to their career prospects – and believe is vital to a country whose alternative prime minister is Jeremy Corbyn.

For that reason, talk of Theresa May enduring as Prime Minister until the end of the Brexit negotiations in two years’ time is the preserve of just a few wishful thinkers. Some sort of calm is being established but the party is far from settled or united; there is a widespread conviction that it cannot be so under the present leader.

Elements of the great change have been executed, as Nick Timothy and Fiona Hill, May’s former advisers, will testify.

However, this is only beginning, as shown by the debate in the media about how long May can survive in Downing Street. There is dissatisfaction about elements of her recent reshuffle, but it is quieted because few believe that some of the more contentious appointments or reappointments will last more than a matter of months. Her colleagues are also alarmed by the meal she has made of doing what was supposed to be a straightforward deal with the DUP.

The climate in the party at the moment is one in which everything – jobs, policies and, of course, the leadership – will soon be up for grabs. Debate over “hard” and “soft” Brexits is illusory: anyone who wants to be Conservative leader will need to respect the view of the party in the country, which is that Britain must leave the single market and the customs union to regain control of trade policy and borders. That is one reason why the prospects of David Davis, the Brexit Secretary, are being talked up.

Some of May’s MPs, for all their hard-mindedness about the future, speak of feeling “poleaxed” since the general election. Even before the result changed everything, there was dismay about the bad national campaign; but that, it was felt, could be discussed in a leisurely post-mortem.

Now, instead, it has undermined faith in May’s leadership and credibility. “The social care disaster was key to our defeat,” an MP told me. “It wasn’t just that the policy damaged our core vote, it was the amateurishness of the U-turn.” A more seasoned colleague noted that “it was the first election I’ve fought where we succeeded in pissing off every section of our core vote”.

The limited ministerial reshuffle was inevitable given May’s lack of authority, and summed up her untenability beyond the short term. Most of her few important changes were deeply ill judged: notably the sacking of the skills and apprenticeships minister Robert Halfon, the MP for Harlow in Essex, and a rare Tory with a direct line to the working class; and the Brexit minister David Jones, whose job had hardly begun and whose boss, Davis, was not consulted.

George Bridges, another Brexit minister, who resigned, apparently did so because he felt May had undermined the government’s position in the negotiations so badly, by failing to win the election comprehensively, that he could not face going on.

Much has been made of how Philip Hammond, the Chancellor, was marginalised and briefed against, yet reappointed. Patrick McLoughlin, the party chairman, suffered similarly. Conservative Central Office was largely shut out from the catastrophic campaign, though no one got round to briefing against McLoughlin, who kept his head down – unheard-of conduct by a party chairman in an election.

As a political force, Central Office is for now more or less impotent. It has lost the knack of arguing the case for Conservatism. MPs are increasingly worried that their party is so introspective that it just can’t deal with the way Corbyn is spinning his defeat. “An ugly mood is growing,” one said, “because militant leftism is going unchallenged.” That cannot change until May has gone and the party machine is revived and re-inspired.

***

Nobody in the party wants a general election: but most want a leadership election, and minds are concentrated on how to achieve the latter without precipitating the former. One angry and disillusioned ex-minister told me that “if there were an obvious candidate she’d be shitting herself. But most of us have realised Boris is a wanker, DD isn’t a great communicator and is a bit up himself, Hammond has no charisma, and Amber [Rudd] has a majority of 346.”

On Monday a group of senior ex-ministers met at Westminster to discuss next steps. It was agreed that, with the Brexit talks under way, the most important thing in the interests of restoring order was securing the vote on the Queen’s Speech. Then, May having done her duty and steadied the proverbial ship, the party would manage her dignified and calm evacuation from Downing Street.

Those who agree on this do not always agree on the timing. However, few can make the leap of imagination required to see her addressing the party conference in October, unless to say “Thank you and goodnight” and to initiate a leadership contest. Many would like her out long before then. The only reason they don’t want it this side of securing the Queen’s Speech is that the result, as one put it, would be “chaos”, with a leadership contest resembling “a circular firing squad”.

That metaphor is popular among Tories these days. Others use it to describe the ­apportioning of blame after the election. As well as Timothy and Hill, Lynton Crosby has sustained severe wounds that may prevent the Tories from automatically requesting his services again.

Following the Brexit referendum and Zac Goldsmith’s nasty campaign for the London mayoralty, Crosby has acquired the habit of losing. And then there was Ben Gummer, blamed not only for the social care debacle, but also for upsetting fishermen with a vaguely couched fisheries policy. These failings are becoming ancient history – and the future, not the past, is now the urgent matter – yet some Conservatives still seethe about them despite trying to move on.

“I haven’t heard anyone say she should stay – except Damian Green,” a former minister observed, referring to the new First Secretary of State. Green was at Oxford with May and seems to have earned his job because he is one of her rare friends in high politics. He is regarded as sharing her general lack of conviction.

Older activists recall how the party, in 1974, clung loyally to Ted Heath after he lost one election, and even after he lost a second. Now, deference is over. Most Tory activists, appalled by the handling of the campaign, want change. They would, however, like a contest: annoyed at not having been consulted last time, they intend not to be left silent again.

That view is largely reflected at Westminster, though a few MPs believe a coronation wouldn’t be a problem, “as we don’t want a public examination of the entrails for weeks on end when we need to be shown to be running the country effectively”. Most MPs disagree with that, seeing where a coronation got them last time.

With the summer recess coming up, at least the public’s attention would not be on Westminster if the contest took place mostly during that time: hence the feeling that, once the Queen’s Speech is dealt with, May should announce her intention to leave, in order to have a successor in place before the conference season. It is then up to the party to design a timetable that compresses the hustings between the final two candidates into as short a time as compatible with the democratic process, to get the new leader in place swiftly.

Some letters requesting a contest are said to have reached Graham Brady, the chairman of the 1922 Committee of backbenchers. One MP told me with great authority that there were eight; another, with equal certainty, said 12. Forty-eight are needed to trigger the procedure. However, engineering such a contest is not how most Tories would like to proceed. “She has had an international humiliation,” a former cabinet minister said, “and it is transparently ghastly for her. Then came the [Grenfell Tower] fire. There is no sense our rubbing it in. I suspect she knows she has to go. We admire her for staying around and clearing up the mess in a way Cameron didn’t. But she is a stopgap.”

MPs believe, with some justification, that the last thing most voters want is another general election, so caution is paramount. None doubts that the best outcome for all concerned would be for May to leave without being pushed.

Her tin-eared response to the Grenfell disaster shocked colleagues with its amateurishness and disconnection. “I’m sure she’s very upset by Grenfell,” someone who has known her since Oxford said. “But she is incapable of showing empathy. She has no bridge to the rest of the world other than Philip.” Another, referring to the controversial remark that torpedoed Andrea Leadsom’s leadership ambitions last year, said: “You would get shot for saying it, but not having had children hasn’t helped her when it comes to relating to people. Leadsom was right.”

***

May was quicker off the mark on Monday, issuing a statement condemning the appalling attack at Finsbury Park Mosque swiftly after it occurred, and going there shortly afterwards to meet community leaders. No one could fault her assurance that Muslims must enjoy the same protection under the law as everyone else, or the speed and sincerity with which it was made. She is learning what leadership entails, but too late.

Her administration has become unlucky. This happened to John Major, but, as in his case, the bad luck is partly down to bad decisions; and the bad luck that comes out of the blue simply piles in on top of everything else. Grenfell Tower, lethal and heartbreaking for its victims and their families, was merely more bad luck for the Prime Minister because of her slow-witted response and failure – presumably because shorn of her closest advisers – to do the right thing, and to do it quickly.

But then it turned out that her new chief of staff, Gavin Barwell, had in his previous incarnation as a housing minister received a report on improving fire safety in tower blocks and done nothing about it. That is either more bad luck, or it shows May has dismal judgement in the quality of people she appoints to her close circle. Form suggests the latter.

The idea aired last weekend, that May had “ten days to prove herself”, was a minority view. For most of her colleagues it is too late. It was typical of Boris Johnson’s dwindling band of cheerleaders that they should broadcast a story supporting Davis as an “interim” leader: “interim” until Johnson’s credibility has recovered sufficiently for him to have another pop at the job he covets so much.

They also sought to create the impression that Davis is on manoeuvres, which he resolutely is not. Davis has been around long enough to know that if he wants to succeed May – and his friends believe he does – he cannot be seen to do anything to destabilise her further. It is a lesson lost on Johnson’s camp, whose tactics have damaged their man even more than he was already.

Andrew Mitchell, the former international development secretary and a close ally of Davis, told the Guardian: “. . . it is simply untrue that he is doing anything other
than focusing on his incredibly important brief and giving loyal support to the Prime Minister. Anyone suggesting otherwise is freelancing.” That summed up the contempt Davis’s camp has for Johnson, and it will last long beyond any leadership race.

There is a sense that, in the present febrile climate, whoever is the next leader must be highly experienced. Davis qualifies; so does Hammond, who before his present job was foreign secretary and defence secretary, and who has belatedly displayed a mind of his own since May was hobbled. Hugo Swire, a minister of state under Hammond in the Foreign Office, said of him: “He’s got bottom. He was very good to work for. He is an homme sérieux. I liked him very much and he would calm things down.”

But, as yet, there is no contest. Calls for calm have prevailed, not least thanks to Graham Brady’s steady stewardship of the 1922 Committee, and his success in convincing the more hot-headed of his colleagues to hold their fire. Yet MPs say the 1922 is not what it was 20 years ago: ministers have become used to taking it less seriously.

However, many MPs expect Brady, at a time of their choosing, to go to Downing Street and deliver the poison pill to Theresa May if she is slow to go. Some who know her fear she might take no notice. If she were to play it that way, her end would be unpleasant. As the old saying goes, there is the easy way, and there is the hard way. Remarkably few of her colleagues want to go the hard way but, like everything else in the Tory party at the moment, that could change.

Simon Heffer is a journalist, author and political commentator, who has worked for long stretches at the Daily Telegraph and the Daily Mail. He has written biographies of Thomas Carlyle, Ralph Vaughan Williams and Enoch Powell, and reviews and writes on politics for the New Statesman

This article first appeared in the 22 June 2017 issue of the New Statesman, The zombie PM

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