Rod Macgregor examines the oil depletion debate, its consequences for the
world economy and a socialist response

Peak Oil & oil depletion

A debate is currently raging among oil professionals, and it splits into two camps. This debate focuses on a day called Peak Oil, the day in the future when oil production reaches an all-time high, but can never again reach that figure.

In one camp in this debate we have a group who predict that the Peak Oil ‘topping point’ will happen quite soon. This group tends to be made up of ex-oil industry professionals such as geologists, senior management, etc., and many belong to the Association for the Study of Peak Oil (ASPO for short). Some look on them as scaremongers, others see them as whistle blowers.

In the other camp, we have a group who contend that the Peak Oil ‘topping point’ is much further in the future (2030-2040). This group is made up mainly of governments, oil companies, financial analysts, business journalists and the like.

At its most basic, the argument is about the amount of oil that remains to be recovered. The members of ASPO say one trillion barrels, and their opponents in the argument say two trillion. That difference has been described as seismic. If those who predict an early Peak Oil topping point are correct, peak oil will occur by the end of this decade.

The argument is over what is known as the Ultimate Recoverable Reserves, or to put it in the jargon of the oil business, the Ultimate. This figure is the total amount of oil that would ever be produced. It breaks down as oil already recovered plus proven reserves plus new discoveries.

Both sides of the argument are pretty much in agreement about the already recovered part of the equation. So, why are there such differences between the two camps in the amount of oil that is left? One big clue lies in a publication called the BP Statistical Review of World Energy, an annual report prepared by the giant oil company, which is regarded globally as the holy bible of the oil industry. If, however, you look really closely at the very small print which accompanies the review you will find the following:

The reserves figures shown do not necessarily meet the United States Securities and Exchange definitions and guidelines for determining proved reserves, nor necessarily represent BP’s view of proved reserves by country.

So, there you have it! BP don’t believe the figures in their own publication. With all the knowledge accumulated by BP over the company’s long history, they can do no better than come up with a report compiled using other people’s statistics. What has happened that makes one of the world’s major oil companies disown statistics published in their own review?

First, proven reserves! If you were to look at a bar chart detailing year by year the world’s proven oil reserves you would see that between 1985 and 1989 the big Middle East oil producers’ reserves increased by 300 billion barrels. This, not unnaturally, would lead you to believe that there must have been some pretty big oil discoveries during that period.

Not so—during this time span new discoveries amounted to only 10 million barrels.

Here’s what happened. Kuwait, Abu Dhabi, Dubai, Iran, Iraq and Saudi Arabia are all members of the oil producing cartel known as OPEC. In OPEC, production is by quota, that is, the more oil a country has the more it can produce, therefore the more they can earn by selling their oil.

All these nations, over this four year period, decided that there was more oil in their reserves than they had previously thought, and began increasing their reserves. It was a paper exercise with no scientific or geological input. They just said it was there and there it was. All this new oil came from already discovered oilfields. There’s a word for this sort of behaviour and the word is fraudulent.

Let’s fast forward now to January 2004, where we can find another clue which may lead us to believe that the amount of oil in the proven reserves may well be overestimated. Imagine the jolt that then chairman of Shell, Sir Philip Watts, delivered to investors when he announced the shock news that the company had over-estimated its reserves by more than 20 per cent, 23 per cent as it turned out. Several members of the then Shell board are currently the subject of lawsuits in the United States.

Now let’s move on to the US Geological Survey, which has a long and shady history concerning the amount of proven reserves and future discoveries. This is an organisation which has come out of the debate without any integrity whatsoever. Here’s why. In 1956, a world famous geologist, M. King Hubbert, polled 25 eminent contemporaries on what the ultimate figure for oil production in the United States would be.

Hubbert decided on 200 billion barrels, and using his own formula he estimated that oil production in the US would peak in 1971. Almost nobody believed him, and the US Geological Survey in particular was extremely virulent in its opposition to him, doing everything in its power to inflate the amount of oil left—by doing so they could make any problem go away. At one point they stated that there were 590 billion barrels in the United States’ ultimate recoverable reserves.

As it was, Hubbert was wrong. He was a whole year out! US oil production peaked in 1970, just one year prior to his prediction. Since then US oil production has steadily declined, as Hubbert predicted it would, despite the best efforts and employment of latest technologies to find new oil. Applying Hubbert’s formula on a wider scale does not make comfortable reading for the oil business.

Moving on to oil that is yet to be discovered leads us into the area in which the two camps have major disagreements. As stated earlier the members of ASPO say that there are one trillion barrels in proven reserves plus new discoveries. Those who opt for a later date for Peak Oil say two trillion. For the latter group there are many awkward questions.

If there are vast new fields to be discovered, where are they? Why is there no major increase in the amount of tankers being built to transport it? Why, if we are entering an era when oil production is on the increase, is there no major programme of refinery building to deal with the annually increasing demand for oil? Tanker capacity, refinery capacity and the global rig count all peaked in 1981, a quarter of a century ago!

For every barrel of oil now discovered, four are being consumed. The definition of a giant oil field is five hundred million barrels. In the year 2000 there were 16 discoveries of this size, in 2001 nine, in 2002 two, and in 2003 there were none.

Oil discovery actually peaked in 1965, the world’s biggest oil fields were discovered over 50 years ago, and the 1970’s excepted, there have been no huge oil provinces discovered since then. The last year in which more oil was discovered than we consumed was over 25 years ago, and since then there has been an overall and ongoing decline.

The planet has been scoured by geologists on foot, satellites have mapped it, and there are, according to the experts in ASPO, no more huge oil fields or provinces to be found. If they were there they would have been found by now. As BP’s former reserves coordinator, Francis Harper, told a conference on oil depletion at the Energy Institute in November 2004:

Worldwide, the frequency of finding giant oil provinces and super-giant oilfields has been declining for decades and will not be reversed. We’ve looked around the world many times. I’d say there is no North Sea out there. There certainly isn’t a Saudi Arabia.

the global number of oil rigs peaked in 1981
the global number of oil rigs peaked in 1981

By extrapolating the ongoing downward trend of new oil discoveries those who argue for an early Peak Oil topping point estimate that there are only 150 billion barrels of new conventional oil to find, making for an ultimate recoverable reserve of approximately 2 trillion barrels at its highest. This differs significantly from those who favour a late topping point. TheUS Geological Survey, the same institution that rubbished Hubbert’s theory on America’s oil topping point carried out a world petroleum assessment in the year 2000 and came up with an ultimate recoverable reserve which varied between 2,248 billion to 3,986 billion barrels with a mean of 3,003 billion barrels, a difference between the camps of one trillion barrels of oil left to discover.

If the members of ASPO are not mistaken, then the markets are in a state of collective denial with no equivalent in the history of capitalism. As a society we have come to depend totally on oil. All our eggs are in one basket, and that basket could well be precariously The global number oil rigs peaked in 1981 Oil depletion balanced on the tail of an ostrich with its head buried firmly in the sand.

I’d like to take a short look at two dates in the history of oil production, paying particular attention to the years 1973 and 1979, because these two years may give an insight and foretaste of what’s to come when it dawns that the age of oil is in terminal decline. In 1973, following America’s direct involvement in the support of Israel during the Yom Kippur war, the OPEC countries, led by Saudi Arabia, imposed an embargo on oil in retaliation. The oil price subsequently more than doubled, and the effect was remarkable.

The embargo was actually quite short lived because the Saudis saw that there was the very real possibility of them creating a global economic depression that would cripple western economies, and thus damage their own, so out of self-interest they opened the taps again. The embargo, however, did create a severe economic recession. And all of this came to pass with a short-term reduction of only 9 per cent in the world’s oil supply.

The next great oil shock came in 1979, with the Iranian Revolution and the toppling of the Shah. It was prolonged by the outbreak of hostilities between Iran and Iraq in 1980. Again there was a hard economic recession. This crisis ended in 1981, and there were three main reasons for the price falling (it had reached $80 a barrel in today’s terms).

  • Reason 1: The Saudis opened up their taps to increase production, helping to bring the price down.
  • Reason 2: New oil from giant fields in more stable regions (incl. the North Sea) came on line.
  • Reason 3: Large amounts of oil were released from government and corporate stockpiles.

Throughout this crisis, the total reduction in oil production was only 4 per cent, but remember these three reasons, because in any future oil supply crisis, these getout-of-jail cards will not be available because:

  1. After Saudi oil production peaks, and some say it has already, they will not be able to increase the flow of oil.
  2. There are no new super-giant oilfields or provinces left to be discovered.
  3. Large stockpiles are no longer kept, the trend today being towards ‘just in time’ delivery.

Whenever the oil supply to the west is disrupted, or even perceived to be disrupted, something occurs in the stock markets for which there is a two word technical economic term. That term is known as widespread panic, and the real panic will come not with the day when oil production reaches its topping point, but some time after, when a significant number of oil dealers realise that ever-increasing demand is not being matched by ever-increasing production.

When it sinks in that we are now in an era of perpetually decreasing oil production, how the markets react will be crucial. It is quite possible, some say inevitable, that an economic depression could result from the dawning of awareness that the lifeblood of our society is in terminal decline. How bad could it be? Some believe it could be every bit as bad, or worse than, the Wall Street Crash of 1929, during which world trade fell by 62 per cent, millions were laid off, and in the discontent and anger which followed, fascism found a fertile breeding ground, ultimately leading to a war in which over 50 million lives were lost.

Among those at a conference on oil depletion in January 2005 in Edinburgh, sitting, listening and learning were five leading members of the British National Party. Their two great fantasies are the well known one of igniting a race war in this country, and also to take advantage of the chaos that might result in the wake of the day known as Peak Oil. As socialists we ignore the threat of oil depletion at our peril. Socialists must not sleepwalk into oil depletion.

There is one apocalyptic scenario concerning oil depletion, and that is that China, with no significant oil deposits of its own, will become increasingly involved in the Middle East as its economy expands. As one security analyst who preferred to remain anonymous put it.

I am afraid that over the years we will see China become more involved in Middle East politics. And they will want to have access to oil by cutting deals with corrupt dictatorships in the region, and perhaps providing components of weapons of mass destruction, ballistic missiles and other things they have been involved with, and that could definitely put them on a collision course with the United States.

Theoretically, oil depletion could be the spark that sets off WW III.

But what if those in ASPO are wrong? What if, in the face of the evidence, the day called Peak Oil will not occur until the 2030’s or 2040’s? Hallelujah, we’re saved. Sorry, but no. The fact is that the means to extract the oil is not there.

The oil industry has been feasting on the finds of the sixties, with an infrastructure funded in the 70’s.

In 1981, OPECs Sheikh Yamani recognised the drive for alternatives to oil
In 1981, OPEC’s Sheikh Yamani recognised the drive for alternatives to oil

Even if the oil is there, the capacity to get it to market is not. It would require investment of 2.4 trillion dollars over the next decade to bring it up to the required standard. In this scenario, I’ll leave you with a quote from Sheik Yamani when he cautioned OPEC about charging too high a price for oil. Though said in a different context, it could just as easily have been said regarding the lack of investment in infrastructure.

The stone age came to an end not for a lack of stones, and the oil age will end, but not for the lack of oil.

Energy alternatives

Let’s now consider alternatives to conventional oil. There is a lot more oil in the world, but it is what is known as unconventional oil. This is oil that does not flow easily, therefore drilling for it is not an option. Two of unconventional oil’s main sources are the tar sands of Alberta, Canada, and huge deposits of what is known as shale oil in the United States.

Neither will fill the energy gap after peak oil, because the technologies needed to extract the oil at a rate needed to fill that gap do not exist, or are far too costly, both in the financial and environmental sense of the word. To extract bitumen from Alberta’s tar sands requires vast amounts of water, either to wash it in giant washing machines if it is mined on the surface, or to melt it underground as superheated steam. To extract one barrel of oil on the surface would require washing two tons of sand.

Power for the whole operation, it has been proposed, would be provided by purpose-built nuclear reactors, and the whole process would release vast amounts of carbon dioxide, a major greenhouse gas, plus all the leftover washed-out, sludgy sand. All in all, an environmental disaster.

With shale oil, the problems are, if anything even greater. After the first great oil shock of 1973, billions were spent trying to make it commercially viable to extract, all to no avail. Francis Harper has said,

I discount shale oil in my or even my children’s lifetimes.

OK, then, what about the current government’s favourite option—nuclear.

The Government’s own advisory body on sustainable development, the Sustainable Energy Commission, in March 2006 came out strongly against the nuclear option on five main points:

  1. No long-term strategy for dealing with highly toxic nuclear waste.
  2. Uncertainty over the cost of the new nuclear power stations.
  3. The danger of taking the nuclear option that the UK would be locked into a centralised distribution system for the next half century.
  4. By taking the nuclear road efforts to improve energy efficiency would be undermined.
  5. The threat of terrorist attacks and the danger of radiation exposure if countries with lower safety standards decide to opt for nuclear power.

So, all in all, a pretty damning report from its own advisory body, then.

And then, for a one-two double blow to Blair’s vision of a nuclear Britain, the Environmental Audit Committee in April 2006 came out against nuclear reactors, saying they cannot come on line in time to plug the energy gap. All this without decommissioning costs, currently estimated at 70 billion pounds for the current bunch of reactors. Finally, plans are afoot to privatise British Nuclear Fuels. Just what we need—a nuclear Railtrack.

Gas, like oil, will eventually run out, but later than oil. Gas is more mobile than liquid oil, and when peak production does occur, it quite soon falls off a cliff. The USA and China have huge deposits of coal and the temptation for them to turn to coal will be almost irresistible, but burning coal will also do nothing for the state of the atmosphere. We really must get away from burning all fossil fuels, leaving most of the coal, gas and remaining oil in the ground.

These are only some of the alternatives, most of them unconscionable to use, but there is hope, and that is in the area of renewables. We’ve all heard of solar panels, but there is so much more in the way of alternative, renewable technologies out there.

There’s wind power, wave power, micro-wind turbines, solar panels, for the generation of electricity, hydrogen cells to power cars, all of which are featured in the SSP’s draft manifesto to be voted on at the March conference. However, it appears not to mention oil depletion, though it does stress the need to cut back strongly on the burning of hydrocarbons and coal, as well as promoting a free, efficient public transport system.

For transport, a fraction of the amount the government is willing to spend on nuclear power would surely allow research and development to make possible mass production of hydrogen cells small enough to be fitted into most vehicles at comparable cost to the internal combustion engine.

How often have we heard the mantra that renewables cannot fill the gap? True, there is no one renewable that can provide for all energy needs, but neither does that apply now. There are what are called energy hubs. The nuclear hub generates electricity, the gas hub heating, the oil hub transport, with some interchangeability between the hubs. However, renewables in combination can work on a small scale, and, in fact, there is living proof that they do right here in Britain – in the town of Woking in Surrey. Woking Borough Council has reduced carbon dioxide emissions by 77 per cent since 1990. How has this remarkable reduction occurred?

It has been achieved using a hybrid-energy system which utilises private wires, Combined Heat and Power Plants, solar PV and energy efficiency, plus some absorption chillers and fuel cells. Housing estates have been made into their own little energy worlds.

If the national grid collapsed tomorrow, never to rise again, the inhabitants of Woking would still have an all-year-round electrical supply. In the winter the Combined Heat and Power units generate heating and lots of electricity when the solar cells are not working at their optimum. The solar cells generates lots of electricity in the summer when the heating is not needed, meaning the CHP can’t generate lots of electricity. The systems works in perfect harmony. If it can be done in one small town, why can’t it be done in all of them?

In 1981, Sheik Yamani warned his fellow OPEC oil ministers that the West would, if coerced by high oil prices, be able to find alternative sources of energy within ten years. If it could be done then in ten years, surely with another quarter of a century’s advance in alternative energy technologies it could be done in even less time now!

Summing up

Whatever its future, oil was the commodity that greased the wheels of the twentieth century and was at the centre of much of its wars. At the start of the twenty first century it is still at the centre of its wars, but it will be well in decline by the end of the century. It’s obvious that any sustained interruption to the global oil supply would have tremendously serious social and economic consequences. In a way, however, it doesn’t matter a damn about whether the oil will start to run out tomorrow or 40 years from tomorrow. It will run out. It is finite. While we may ignore climate change at our peril, the end of oil is going to force us to address the problems of burning hydrocarbons.

The society we have built, on an endless supply of cheap oil, will come to an end, and before it does, we in the Scottish Socialist Party should be positioning ourselves as the party of alternative energy. Indeed, I believe that with the possibility of the twin horrors of oil depletion conflating with climate change, that we should be pushing it to the top of our agenda.

Some will say that there has always been climate change, and that is true, and that perhaps the whole greenhouse gas scenario is exaggerated. Okay, suppose for a minute that we are in a natural phase of climate change. Should we be exacerbating its effect by pouring out gases which nearly all scientists agree trap heat in the atmosphere? If you saw a house on fire would you throw water on it or petrol?

We in the SSP should be pushing green alternatives, and I don’t mean sticking £30 a year on the road tax for owners of 4x4s. Let’s leave that sort of tinkering round the edges to the Greens. They will have to learn the hard way that you cannot reform capitalism. If ever there was a time when you had to be red to be green it is now.

We, as socialists, should start now to promote investment on a large scale in alternative sources of energy and development of renewables technology. Think of the benefits of no longer being shackled to the supply of a commodity from politically unstable regions.

Think of no need to invade countries on pretexts to secure the supply of society’s lifeblood, because we could be self sufficient in energy supply. Imagine an end to needless and illegal wars. What if the day called Peak Oil does occur by the end of this decade—then, economic turmoil is unavoidable when the penny drops some time after it that the days of cheap and plentiful oil are over for good.

Should this happen, and I don’t want to sound too cynical here, there would be room for us to advance the cause of socialism.

Great social change and revolution do not spring from wells of contentment, and people neither forget nor easily forgive those who have led them to disaster. We cannot ignore the possibility that capitalism itself may come under severe pressure, but neither can we ignore the possibility that Far Right elements could also make great strides in a world in chaos, feeding on the resultant turmoil and anger.

We could not, and should not, in that scenario, stand by looking on.

Remember this, if you think that all this sounds a bit fantastic—we are not talking about a possibility, we are contemplating a certainty—the day in the future when oil no longer rules the world.

In conclusion, I would like to quote from a lad who was quite brainy – Albert Einstein. The quote from Albert I have in mind is something which I think reflects profoundly on the answer to the problems of oil depletion, climate change and plugging the energy gap, and, to be honest, much else besides, and as socialists we should carry his words in our hearts. What he said was this,

You cannot solve the problem with the same kind of thinking that has created the problem.

Rod Macgregor

For more information on Peak Oil, go to ASPO‘s website

Comment: 2008, July 14

Two sections deleted at request of author due to them being out of date.

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