Last week something astonishing happened: Fatih Birol, chief economist of the International Energy Agency, revealed that peak oil has already happened. “We think that the crude oil production has already peaked, in 2006.”
This is amazing since as late as 2005 its executive director mocked those who predicted peak oil as “doomsayers”. Until 2008 (two years after the IEA now says it happened), the agency continued to dismiss the possibility that peak oil would occur.
Mr Birol went on to say ”Existing fields are declining so sharply that in order to stay where we are in terms of production levels, in the next 25 years we have to find and develop four new Saudi Arabias. That is a huge challenge”. This is coded language for “we are in very deep do-do” since no new mega-fields have been discovered in recent years despite the oil companies hunting every inch of the planet.
The era of cheap oil has ended.
Sadly, many governments use the IEA predictions to formulate their long term energy policies… Many of which will presumably now require tearing up. The fuel gauge above is about accurate – the world has used roughly half its available reserves prompting you to perhaps ask.. “we still have half left… why is this a problem?”. The answer is quite simple: the half we have used was the sweet easy to extract half. What’s left is either heavy, deep underwater or mixed in tar and shale sands. Extraction is expensive, energy intensive and disastrous for the environment. Long before you run out of oil it will simply become too expensive to recover – when it requires a barrel of oil to recover a barrel of oil there’s no point in trying.
Production is already struggling to keep pace with demand. This is why oil prices are never going to return to the glory days of $20 to $40 a barrel… $200 to $400 is more likely. Increased energy costs will continue (and accelerate) to feed inflation resulting in “energy poverty” in many developed countries and, most likely, conflict between developing nations.
The road ahead looks rocky to say the least.