Greenpeace has just published an incisive report that coud dramatically re-direct energy policy over the next 2-3 decades. It has been the conventional wisdom that once the world climbs out of the current deep recession, the revived global rate of growth, particularly in the emerging economic super-powers China and India, will once again push oil prices into the stratosphere, well beyond therecent record of $147 a barrel. It may still happen. But Greenpeace has presented evidence which suggests that the collapsing oil price of the last year – it reached as low as $35 a barrel in February this year – may reflect not just the cyclical fall mirroring the slowdown of demand, but more fundamental structural changes as well. It is certainly true that technical improvements in energy efficiency, greater emphasis on energy conservation, the beginnings of a major switch towards renewable sources of energy, increasingly focused Government action across the world against climate change, and growing acceptance that fossil fuels cannot offer long-term energy security are all conspiring to push energy policies worldwide in a profoundly different direction. Which then will strike first – peak oil supply or peak oil demand, and when?

Of course Greenpeace have a motive, which is that if the oil price does not reach a minimum floor level of about $80 a barrel (according to Merrill Lynch), then further investment in the Athabascan tar sands project in Alberta, Canada, becomes unviable. The current price is about $68 a barrel. If the project does go ahead – and the oil majors, particularly Shell, have already poured billions of pounds into it – it would create a turbo surge in greenhouse gas emissions. Greenpeace are therefore urging the big oil companies to think very hard before putting further billions into it.
Nevertheless the argument that a structural change in international attitudes to energy is taking place seems a valid one. In the EU this is driven by a genuine deep concern and fear about long-term climate change impacts which the world ignores at its peril. In the case of China and the US, the driver is more an anxiety about energy security, the energy threat to global hegemony, and the vulnerability of the economy to highly volatile oil prices. In the case of the major developing countries like India, Brazil and South Africa, the concern is the severe energy constraint on development out of poverty. Escaping, or at least minimising, the oil price threat is a common cause. The correlation between the oil price and GDP growth is being weakened.
Significant steps to cap oil demand are being taken in several major countries. The Chinese, noting that dependence on imported energy is the biggest threat to their continuing massive economic growth, are putting increasing emphasis on energy efficiency and fundamental technology change. The Obama Government, noting that about half of US oil demand derives from car use, has linked car company bail-outs to the development of cleaner vehicles. That still leaves Western obsession with big cars with a lot to learn from far more robust Chinese policies. Fuel-efficient cars in China pay a 1% sales tax compared to 40% for SUVs, and Chinese cars generally are more than 50% more efficient than American ones.
So strong pressures are developing to resist the devil’s see-saw where oil prices soar sky-high, then crash because demand is unsustainable at that level, then leading to a dearth of investment because the price is too low, which in turn because of shortage of supply generates the next price hike. So just as the Stone Age ended when there were still plenty of stones left, will the Oil Age end when there is still plenty of oil left? Quite possibly, and maybe in the next decade?

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