Economics alone should drive countries away from crude oil

The debate around developing green energy sources should focus on the economics of crude oil production, not climate change, according to a new analysis.
Written by Hannah Waters, Weekend Editor

In the latest issue of Nature, two scientists take peak oil head-on, analyzing crude oil production over the past several decades and conjecturing where it is headed. And the top line? Worldwide oil production is in decline, and commonly cited replacements -- new oil sources, coal, natural gas, and tar sands -- won't be able to make up the difference.

The authors looked at oil production data from 1998 until today, and noted that, until 2005, supply was able to keep up with demand. But since then, production has plateaued at around 75 million barrels per day, and nonetheless oil price has increased around 15% each year, from $15 a barrel in 1998 to $111 today. This pattern treads dangerous ground:

Such major spikes in fuel price can cause economic crises, and contributed to the one the world is recovering from now. The future economy is unlikely to be able to bear what oil prices have in store. Only by moving away from fossil fuels can we both ensure a more robust economic outlook and address the challenges of climate change. This will be a decades-long transformation that needs to start immediately.

Part of the reason this idea is not taken as seriously as it should be is the way people talk about oil. Industry folk typically cite undiscovered or underutilized oil reserves to blow off the economic argument, the authors write. And there is certainly more oil on the planet that could be used -- but it's not as accessible as it's made out to be.

The true volume of proven global reserves is clouded by secrecy; forecasts by state oil companies are not audited and seem to be exaggerated. More importantly, reserves often take 6–10 years to drill and develop before they become part of supply, by which time older fields have become depleted. It is far more sensible to look instead at actual production records, which are less encouraging. Even while reserves are apparently increasing, the percentage available for production is going down.

The authors then go on to deflate optimism in other forms of fossil-based energy sources. Coal? Estimates of coal abundance have decreased each year, so it's not worth putting our faith in that. Natural gas? Production at a single site has been severely overestimated, with great decreases each year. Tar sands? Again, production is expected to reach less than 5 million barrels a day by 2035 -- not enough to make up the difference. Alternative sources are our best bet, they add.

The analysis is robust, and the authors lament that the economic argument has been "lodged more firmly in the minds of policy-makers." But I think another problem lies in the rhetoric behind 'peak oil.' For decades, environmentalists and economists have forewarned that we will one day reach peak oil, hitting a wall in production, and thus need to shift to other fuel sources. But it's like the boy who cried wolf: every time we hear the phrase "peak oil" and the prediction goes unfulfilled, it becomes a little easier to shrug off.

The authors hope that the analysis will finally redirect the imperative to move away from fossil fuels. The debate over climate change and global warming has stagnated the urgency for the use and discovery of novel energy sources, the authors add, but "emphasizing the short-term economic imperative from oil prices must be enough to push governments into action now."

Let's hope that those governments have a full subscription to Nature so they can read the analysis.

Photo: Steve Wilson/Flickr

This post was originally published on Smartplanet.com

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