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Peak Oil and Mid-Wales
John
Mason, Transition Bro Ddyfi, July 2009
If you haven't heard of
Peak Oil (or Energy Security, Supply Crunch etc), then a quick
explanation is necessary. These are all terms that refer to aspects of
a lengthy crisis situation that we are walking blithely into. The
Credit Crunch is in some ways tied into this in my view - I'll explain
further down.
The problem is very simple. Renewable natural resources such as
crops,
if managed properly, will feed a certain number of people per unit area
every year ad infinitum, so that if enough land is under crops,
everyone can feasibly expect to be fed. On that way of life, augmented
by hunting, fishing and gathering, humans have lived for millennia.
The coming of the Industrial Revolution, not a lot
more than 200 years ago, brought about a fundamental change in our
ways. Increasingly, many countries developed from societies based on
renewable resources to societies based more and more on non-renewable
ones. This is where the problem lies: "non-renewable" refers to the
replenishment time of a resource being well outside of the human
history timeframe. Many oilfields, for example, were formed tens or
hundreds of million years ago. Unlike crops, you can't start them off
in March and harvest them in September.
Economic Geology is the sub-discipline of that Earth Science which
deals with things from which money may be made by digging them or
pumping them out of the ground - coal, oil, diamonds, gold and so on.
Put simply, an "economic" mineral deposit is one that may be extracted
with profit. An "uneconomic" deposit is one that cannot be extracted
with profit, and so is left where it is. Since mining is almost
entirely a private sector activity, and is therefore profit-dependant,
it is the economic deposits that concern us here, and one group in
particular: our oil deposits.
The products that are produced when crude oil is refined mostly have
two very useful properties in common: they a) burn and are b) runny. A
barrel of oil (34.97 UK gallons) contains a whopping 6.1 gigajoules of
energy - that's 2118 man-days of hard labour's worth! The advantages of
these two properties in combination are immense: just for starters,
without them we would not have the Internal Combustion Engine. Think
about that for a moment. Imagine society suddenly being faced with a
decline in the availability of the fuels that make internal combustion
engines run. What implications can you think of?
In 2008, the
International Energy Agency (IEA) predicted that the supply of
conventional crude oil would peak around 2030, just 21 years from now.
Conventional crude is the easy-to-get oil that can simply be pumped
from oil-wells. There are other sources, known as "non-conventional
crude" - oil-shales, tar sands and so on. The difference with these is
that they require a significantly greater energy input in order to
extract the synthetic crude that can be prepared from them. Therefore,
that synthetic crude costs more to obtain and therefore it is only
profitable on a big scale at much higher crude oil prices than the
current $60-70 (July 2009) per barrel. A second problem concerns the
rate of production - it has been estimated that gearing-up oil
production from the Canadian Tar-Sands ( a huge resource) could see
4.35 million barrels a day being produced by 2020. That's 5.2% of
current daily demand.
In the period 2007-2008, an interesting thing happened to the crude oil
price. For some time, it had been bumbling along at $60-$75/barrel. But
it then began a steep climb to an unprecedented $147/barrel by mid-July
2008, after which the price collapsed even more steeply to below
current levels. If you mouseover the oil-price graph above to the "5y"
tab, it shows up very well. What happened?
At the time, there was much rumour doing the rounds that Peak Oil was
here: this was it. There was certainly a period during 2007 when demand
exceeded supply. Peak demand was in the 4th quarter of 2007 at 87.2
million barrels a day, whilst supply was back at 86.5 million barrels a
day. Supply peaked in the first quarter of 2008 at 87 million barrels a
day. That demand-supply convergence not only put up prices but also it
attracted speculators to buy into oil. At the same time, the collapse
of the huge sub-prime market, which had started over a year previously,
was biting hard and investors dived headlong from the finance sector
into commodities (e.g. gold - always regarded as a safe haven when the
financial sector is in trouble). Commodity prices were driven as high
as they were until speculators began to cash in on their "winnings",
which in turn precipitated falls across many of the commodity markets.
With oil, something else occurred. Many people were already badly
affected by the Credit Crunch: now, faced with sky-high fuel costs,
they decided quite naturally to use less: to do less road miles. So,
demand for oil products dropped (it's known as Demand Destruction), the
price plummeted and has remained depressed until relatively recently as
the effects of the Credit Crunch and its consequent recession bite
harder and harder.
What happens when we move out of recession again? Demand for oil
products will rise, but by how much? Will suppliers struggle to play
catch-up? Is the 2008 supply maximum of 87 million barrels a day as far
as we can go on the production side? Will demand exceed that again? If
the answers to the last two questions are yes, then the scenario that
we risk seeing is one of supply-crunches and subsequent economic chaos
occurring repeatedly BEFORE the IEA-predicted peak oil date,
driven not entirely by geological issues but also by economics.
Oil price increases invariably carry through
to any oil-dependant product price. This, then, will change the way of
life of anybody, anywhere, whose lifestyle currently depends on cheap
oil, in transport, agriculture, manufacturing, food retail: the list is
endless. That is the unhealthy kind of transition we will have forced
upon us
all by a combination of geology and economics. The adverse nature of
the consequences, if unmitigated, are obvious.
