A scientist and economist have linked the current financial crisis to an increase in oil consumption. Ireland's energy strategy is utterly inadequate, says Eddie Hobbs. By Vincent Ryan.
Global daily oil consumption could be represented thus: an unbroken thread of oil barrels, standing lip to lip, looped around the equator, embracing the globe. It would take only 80 million barrels, three million less than is consumed daily. Humanity has bound itself to oil, and as production falls and consumption rises the bind will tighten.
Dr Colin Campbell, a retired British Petroleum geologist living in Cork, wrote The Coming Oil Crisis, which is credited with having convinced the International Energy Agency of the importance of peak oil (see panel below). Dr Campbell believes peak oil has already passed, and he attributes the current financial crisis to a spike in the price of oil.
He said, “I think the peak of regular conventional oil for the world as a whole was passed in 2005. As [oil] started to go in to decline they had to rely on deep water oil and heavy oil from Canada and so on, which is much more expensive and the prices started to rise. The shrewd traders saw this rising trend and bought futures on the futures market and the oil industry kept the tanks full, watching them get more valuable every day”.
He continued, “This led to a surge in prices in 2008, which reached a peak in July of almost $150 a barrel. This high price delivered an absolute flood of money to Middle Eastern governments where it still cost $10-$20 to produce. They were buried in money which they then passed back to the Western banks and so on, who started lending it out on ever more dubious terms, as you well know. The high prices of oil triggered an economic downturn, the demand for oil fell, and prices for oil fell to more or less what they were in 2005, around $50. Since then they have edged up to around $83. My own estimate is that the peak of all categories of oil was passed in 2008 also, so it may be no coincidence that this price surge and the peak of all kinds of oil coincided more or less.”
The actual date of peak oil will in time be committed to the history books. What matters now is securing energy for future needs, but the picture is grim.
Dr Campbell believes that countries who are modest exporters of oil will move to conserve the resources for their own use. Such ‘resource nationalism’, though condemned by free market economists, makes “eminent good sense”, according to Dr Campbell.
Peak oilers believe that the price of oil will remain high and that surges in price will occur due to speculation and shortages. Ominously, as global oil demand is set to hit a record high this year according to the International Energy Agency, peak oilers also believe that each surge will trigger a subsequent deeper economic recession.
“You have an economic recovery, the demand for oil goes up, the price goes through the ceiling and that triggers another recession. We are facing some form of cyclical downturn in my opinion,” said Campbell.
Financial adviser Eddie Hobbs, another avid peak oiler, has echoed these fears. He said “the world economy is going to go through boom and bust cycles based on the price of oil. If you go back to the recession and you look at 2007, interest rates in the United States went up in 2007 dramatically. They went up because oil prices went up.... the following year they had a property collapse because of the huge levels of consumer debt that had been built up as a consequence of cheap money. We are entering into a period that I describe as the 1970’s on steroids.”
One difference stands out: on this occasion the political problem cannot be solved by getting OPEC to turn on the tap again.
Ireland is one of the highest per capita users of oil in the world. Our energy needs burn about 200,000 barrels of oil a day. Our vulnerability to peak oil is exacerbated by the fact that we generate half of our electricity from natural gas.
An offshore gas field is currently being developed off the west coast of Ireland. Serrica Energy announced earlier this year that they had found oil in the Slyne basin, but only the criminally optimistic believe that Ireland will become a net energy producer based on these reserves.
The Department of Communications, Energy and Natural resources have said that they “expect Corrib Gas Field to begin production in late 2010 or early 2011. It will supply between 50%-60% of Ireland’s natural gas demand for approximately five years with production declining thereafter. That supply will be used to displace the imported gas that is currently used to generate electricity and heat our homes.”
However, according to Eddie Hobbs, Ireland is completely unprepared for the coming crisis of peak oil. He criticized the Department of Communication, Energy and Natural Resources for relying on their International Energy Association reports, particularly the 2008 IEA report which states that “the world is not running short of oil or gas just yet”.
According to Hobbs the IEA reports are now known to be utterly incorrect. He said, “If you look at the IEA report, which I call the Goldilocks report, you’ll find there are three things on which it is relying. Number one they are relying on a huge increase in natural gas liquids. There hasn’t been for the last number of years, it’s a flat production. They are also worryingly relying on a big increase in oil coming from Canadian oil sands and the whole economics of Canadian oil sands is highly suspect. In order to get the oil out of the sand you have to heat the sand. In order to heat the sand you have to burn gas and gas prices are directly correlated to oil prices.
“The third thing they are relying on is a massive increase in investment in oil and gas infrastructure, to the order of something like $26 trillion over the next 15 years and that’s not happening either. If you look at the most recent reports from them [IEA] they are already saying that due to the global downturn an awful lot of infrastructure projects upon which they had relied have been suspended.”
Hobbs also accused the Department of Communication, Energy and Natural Resources of failing to prepare for peak oil.
“Ireland is absolutely and utterly sleepwalking through what is the biggest change since industrialization. If you actually look at the preparedness we’ve got it is a farce. The two most recent reports issued by Minister Eamon Ryan’s department, one to deal with what we would do in the event of oil disruption and the other to do with international oil supply, there isn’t one sentence in either report to deal with the reality of peak oil.”
Peak Oil was first proposed by Dr M King Hubbert in 1955. He proposed that oil is produced on a curve. Starting at zero, the sum total of all oil producing wells would rise until a peak and then irreversibly decline. Dr Hubbert’s theory was left in the academic wilderness for over a decade. Meanwhile, oil exploration continued apace, peaking in the 1960’s. The world’s most accessible oil wells were tapped, drilled, and the draining began. The world was drag-racing down the road to peak oil. Hubbert’s thesis was dusted off again in 1971, when America hit peak oil. Now the curve for predicting the decline in oil production is known as the Hubbert curve.