Tuesday, 2 December 2014

Whither peak oil?

One of the central ideas that has inspired the Transition movement is the idea that oil will eventually reach a price where it is unaffordable to carry on using it in the way that we are used to. Some time soon, we will reach "peak oil", where the cost of producing oil by whatever means it is available will rise to overtake the commercial benefit of selling it. It has long been assumed that this would be a steady climb, with some wobbles as the market started to adjust to it.

Some customers will realise that they can manage fine without oil, and will simply stop buying it, which will then make it very slightly cheaper for the remaining customers who are more committed. Eventually, the only cases where oil is used will be where it is completely indispensable, and no replacement is available.

This is only one of the considerations for Transition, but a major one. When oil ceases to be cheaply available, there will be less car journeys, less international freight, less plastics and fertilisers, it will really challenge everyone to live more locally and sustainably, quite quickly. Stronger community, stronger local trade and diversity, and simple, wholesome food and water supplies will be fundamentally necessary.

But what we are currently seeing is cheaper oil, and a surprising decision by the main oil-producing countries to maintain production at current levels, which seems set to send prices lower, rather than higher.


This is seen by some commentators as an attempt to counter the US strategy of widespread fracking, and to make these businesses unprofitable, at the cost of losing out on profits themselves. The concept of peak oil is known to those in the industry, and the members of OPEC may be thinking that they can force the US Shale producers to come up against the pain of peak oil earlier than they do.

If oil prices are high, it gives them an incentive to dig up the really difficult reserves, while low prices are more likely to make it unprofitable. The economic costs involved in hydraulic fracturing are extremely high, to say nothing of the enormous human costs of polluted aquifers, poisoned livestock and displaced communities.

One good piece of news is that the Bank of England is now seriously looking into the financial risks that fossil fuels pose for insurance, in terms of the principle that most fossil fuels available are actually "unburnable". While they would produce energy as desired, it would be insane to use of all of them up because of the effect it would have on the climate.


The outcome of the talks in Lima will help to determine how quickly the really big financial institutions get out of the oil game, when they also come to see that it is "combustible but not burnable!"

1 comment:

  1. According to this article on the BBC today http://www.bbc.co.uk/news/world-middle-east-30289546, the reason for the current low oil price is Saudi Arabia getting at Iran, not the US, (at least not only the US). In any case, the fact that oil prices are being manipulated for political reasons is yet another reason for us to reduce our dependency on it.

    Oscar's last point about oil reserves being unburnable doesn't just apply to oil - it is all fossil fuels. Some investors are divesting out of fossil fuels - especially coal - and not just for ethical reasons. E.ON has just announced it is splitting off its fossil fuel generators business for similar reasons. This article has a good roundup of the issues