It has just been reported that a big-name industry organisation is complaining that a DECC-commissioned Wicks Review into energy issues complacently played down, even largely ignored, the whole question of peak oil. Given that even the International Energy Agency (IEA), which is always close to the oil industry, is now fiercely debating within its own ranks how soon the oil will run out, which would herald an unparalleled economic dislocation for the world economy, this head-in-the-sand approach seems bizarre. Is this because lead elements in the oil industry, and particularly the US, are keen to talk up the availability of oil supplies lest a panic sends the present precarious global economic recovery into a tailspin? Certainly whistleblowers have claimed that there is political pressure from the US to massage projections of future oil reserves and production levels, though such claims have been rejected by the IEA. Whatever, this is an issue which it would be suicidal to duck, given its implications.

World oil production peaked before the current world recession at 87 million barrels a day (mbd) or nearly 32 bn barrels a year. It has now fallen back to 81 mbd in the downturn. It is all too readily assumed that once world recovery is firmly under way, production will reurn to 87 mbd and continue then steadily to increase. The IEA till recently was predicting 120 mbd by 2030, though they have now scaled that back drastically to 105 mbd. However, a Swedish study published last week argued that the figure could be much lower – some 75 mbd – and that peak oil may even already have been reached. A more common view, and one shared by the recent UK Energy Research Council report, is that global oil production could peak around 2015 and at a level unlikely to be higher than 95 mbd.
There are also good reasons, as Greenpeace has been pointing out to Shell and BP and their shareholders including their pension fund-holders, that the oil price fall is not just a cyclical phenomenon, but may also reflect more fundamental structural factors. These certainly include advances in energy efficiency, increasing technical exploitation of alternative energies, cleaner vehicles, tightening anti-climate change government policies, and worries about energy security. All of these may inhibit future fossil fuel investment, especially since such exploration is increasingly pushed towards more expensive developments in deep water and offshore Arctic sites and tar sands. It has been estimated that the latter require a minimum stable price of around $80 a barrel to make the investment viable, yet the price having crashed from a peak of $147 to just $40 a barrel has still not recovered to $80.
On that basis, with much investment deterred or postponed, the oil infrastructure required to service growing demand of some 6-12% a year from China and India may well not materialise, or certainly not on the scale to deliver price stability. In those circumstances the enormous economic dislocation from a sudden surge in crude prices cannot be ruled out, indeed must be quite likely. Is that something the Government should be seeking to brush over or keep hidden?

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