In a recent article, Dieter Helm, Professor of energy policy at the University of Oxford, argued that 'the peak oil brigade' was 'leading us into bad policymaking on energy'.
According to him, it is a mistake to assume that 'oil and gas prices are going ever upwards, that they will be volatile and that a core function of energy policy is to protect British industry and consumers from the consequences'. Yet, his argumentation contains serious omissions and inaccuracies.
Let me start by saying on which point I agree with Professor Helm. Yes, the planet certainly has enough fossil fuels 'to fry the planet several times' and mitigating climate change should be a priority. But whether we like it or not, 'peak oil' remains a real problem. The situation is actually easy to comprehend and I seriously wonder how Professor Helm fails to understand it.
According to Shell, in order to maintain global oil production at today’s level, we would need to add the equivalent of four new Saudi-Arabia, within the next ten years. A study from the US Energy Information Administration indicates similar conclusions. This is a tremendous effort, which many in the industry would argue is an impossible one.
Indeed, what matters is that production from current oil fields declines by about 5 per cent per year. While demand may be inelastic, the same is true for production. It usually takes between five to seven years to produce oil once a discovery is made. As we can see in the EIA graph, tensions in the markets in the coming years are now inevitable. To quote the US Joint Forces Command, 'as early as 2015, the shortfall in output could reach nearly 10 million barrels per day'.
While conventional oil production peaked in 2006, it is correct that unconventional resources - Canadian oil sands, US shale oil and Venezuelan extra heavy oil - are enormous. But producing oil from these resources is slow, economically viable only at a high price and environmentally destructive.
According to the energy consultant, IHS CERA, described by The Economist as 'oil optimists', Canadian oil sands could, in the 'high growth case', reach no more than 5.7 MBD by 2030. Meanwhile, the extra heavy oil in the Venezuelan Orinoco Belt and US shale oil are expected to play an even smaller role in future production. These are no more than peanuts in regard to the four new Saudi-Arabia we need within ten years.
Contrary to what Professor Helm argues, current high oil prices have nothing similar to what happened during the 1979 oil shock. While oil prices could, momentarily, decline with another recession, since conventional oil production peaked in 2006, we have entered a new energy paradigm.
As the Chief-Economist of the International Energy Agency likes to say, 'the era of cheap oil is over'. For as long as we remain addicted to oil, we should expect price shocks, volatility in the markets and economic crises.
If policymakers finally understand our new energy paradigm, then this is undoubtedly a good start. Climate change and 'peak oil' both represent unprecedented challenges to humankind and dealing with them requires that we urgently de-carbonise our economies.
Lionel Badal is Masters student in International Energy at Sciences Po Paris - he has written for the Ecologist on peak oil
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