Peak Oil is You
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Page added on October 31, 2013
An oil crash is on its way and we should be ready
FIVE years ago the world was in the grip of a financial crisis that is still reverberating around the globe. Much of the blame for that can be attributed to weaknesses in human psychology: we have a collective tendency to be blind to the kind of risks that can crash economies and imperil civilisations.
Today, our risk blindness is threatening an even bigger crisis. In my book The Energy of Nations, I argue that the energy industry’s leaders are guilty of a risk blindness that, unless action is taken, will lead to a global crash – and not just because of the climate change they fuel.
Let me begin by explaining where I come from. I used to be a creature of the oil and gas industry. As a geologist on the faculty at Imperial College London, I was funded by BP, Shell and others, and worked on oil and gas in shale deposits, among other things. But I became worried about society’s overdependency on fossil fuels, and acted on my concerns.
In 1989, I quit Imperial College to become a climate campaigner. A decade later I set up a solar energy business. In 2000 I co-founded a private equity fund investing in renewables.
In these capacities, I have watched captains of the energy and financial industries at work – frequently close to, often behind closed doors – as the financial crisis has played out and the oil price continued its inexorable rise. I have concluded that too many people across the top levels of business and government have found ways to close their eyes and ears to systemic risk-taking. Denial, I believe, has become institutionalised.
As a result of their complacency we face four great risks. The first and biggest is no surprise: climate change. We have way more unburned conventional fossil fuel than is needed to wreck the climate. Yet much of the energy industry is discovering and developing unconventional deposits – shale gas and tar sands, for example – to pile onto the fire, while simultaneously abandoning solar power just as it begins to look promising. It has been vaguely terrifying to watch how CEOs of the big energy companies square that circle.
Second, we risk creating a carbon bubble in the capital markets. If policymakers are to achieve their goal of limiting global warming to 2 °C, 60 to 80 per cent of proved reserves of fossil fuels will have to remain in the ground unburned. If so, the value of oil and gas companies would crash and a lot of people would lose a lot of money.
I am chairman of Carbon Tracker, a financial think tank that aims to draw attention to that risk. Encouragingly, some financial institutions have begun withdrawing investment in fossil fuels after reading our warnings. The latest report from the Intergovernmental Panel on Climate Change (IPCC) should spread appreciation of how crazy it is to have energy markets that are allowed to account for assets as though climate policymaking doesn’t exist.
Third, we risk being surprised by the boom in shale gas production. That, too, may prove to be a bubble, maybe even a Ponzi scheme. Production from individual shale wells declines rapidly, and large amounts of capital have to be borrowed to drill replacements. This will surprise many people who make judgement calls based on the received wisdom that limits to shale drilling are few. But I am not alone in these concerns.
Even if the US shale gas drilling isn’t a bubble, it remains unprofitable overall and environmental downsides are emerging seemingly by the week. According to the Texas Commission on Environmental Quality, whole towns in Texas are now running out of water, having sold their aquifers for fracking. I doubt that this is a boom that is going to appeal to the rest of the world; many others agree.
Fourth, we court disaster with assumptions about oil depletion. Most of us believe the industry mantra that there will be adequate flows of just-about-affordable oil for decades to come. I am in a minority who don’t. Crude oil production peaked in 2005, and oil fields are depleting at more than 6 per cent per year, according to the International Energy Agency. The much-hyped 2 million barrels a day of new US production capacity from shale needs to be put in context: we live in a world that consumes 90 million barrels a day.
It is because of the sheer prevalence of risk blindness, overlain with the pervasiveness of oil dependency in modern economies, that I conclude system collapse is probably inevitable within a few years.
Mine is a minority position, but it would be wise to remember how few whistleblowers there were in the run-up to the financial crash, and how they were vilified in the same way “peakists” – believers in premature peak oil – are today.
But I do believe that there is a road to renaissance, especially if we make the right decisions in the wake of the IPCC’s latest warnings. We have to nurture clean energy industries and strategies, and accelerate them as though mobilising for war. Emerging experience in Germany and elsewhere gives increasing credibility to the view that modern economies can be powered on a mix of renewables. My parents’ generation amazed themselves at how fast they could mobilise tanks, fighters, bombers and warships. If we were to repeat that level of application, we could avert much of the horror that the IPCC warns of.
So far we have found ways to collectively bury our heads in the sand in the face of dire scientific warnings. If we fail to heed the report and all its implications, the next great crisis of capitalism will force us to act. It won’t be possible to ignore lights that go out and tankers that fail to arrive.
This article appeared in print under the headline “Burn and crash”
Jeremy Leggett is a social entrepreneur and writer, and is chairman of Solarcentury, SolarAid and Carbon Tracker. His latest book is The Energy of Nations: Risk blindness and the road to renaissance (Routledge)
13 Comments on "An oil crash is on its way and we should be ready"
mike on Thu, 31st Oct 2013 12:35 pm
Billions are going to die over the century and as they do it they’re are going to blame whatever or whomever is the simplest thing to blame.
There is no happy skippy outcome where everyone works together and fixes everything. Perhaps in some small areas on a very local scale yes, but not globally. For christs sake I watched the UK energy discussion the other day and not one person mentioned even the hint that prices were going up because maybe just maybe EROEI was going down. The reason energy prices are going up apparently are because of a lack of competition, green levies and evil corporations.People are clueless.
J-Gav on Thu, 31st Oct 2013 12:59 pm
Call it ‘risk blindness,’ hubris, greed, smug complacency or cognitive dissonance, I agree with Leggett : “I conclude that system collapse is probably inevitable within a few years.” However, we still have something to say (and do) about just how devastating that collapse will look. Whether or not we avail ourselves of the small window of opportunity which still remains is another question … If we don’t, we could easily end up with cascading crises in most sectors of society.
rockman on Thu, 31st Oct 2013 1:12 pm
Excellent well balanced piece IMHO. Except for one little glitch: “Even if the US shale gas drilling isn’t a bubble”. The shale gas driling was a bubble and did burst back in late ’08 when prices collapsed and the rig count eventually fell almost 80%. Probably meant to say “US shale oil drilling”.
bobinget on Thu, 31st Oct 2013 1:40 pm
Until Fukushima, influentials in the environmental
community were starting to come round to believing
nuclear power wasn’t so bad after-all. This is always the way it goes down. Poor planning killed more people in the recent past then any grand conspiracy
every devised. Just when we believed a solution, no matter how expensive, was at hand, it turned around and hits us upside the head with a metric ton of terrible facts.
#1) There are already enough greenhouse gases in the “pipeline’ to end this so called civilization long before brilliant petroleum engineers run out of creativity.
#2) Nuclear engineers are NOT resolving Fukushima
problems. How many billions will perish as a result
is unknown.
With one certainty lingering and another disturbing
uncertainly threatening to change the Northern Hemisphere forever. Production levels at Ford, GM,
Toyota, Boeing, CAT, Mitsubishi, even leading ‘defense’
contractors, all totally dependent on dependable, affordable petroleum, is no longer important. Suffice
to say suppliers, manufactures, shippers, users will never relinquish control as long as breaths remain.
BillT on Thu, 31st Oct 2013 1:43 pm
‘Clean energy’ … is his code words for ‘renewables’ where he now makes his living. Another sales pitch in the form of an article.
Clean energy can ONLY happen by burning lots of dirty energy sources. And when those dirty energy sources stop, so does the production of the ‘clean energy’ sources and the eventual end of ‘clean/renewable energy’ as the components fail and the systems cannot be repaired.
I have maybe 30 years left on this earth and, with solar panels and wind generators, I may be able to keep some electric going to power things like water pumps, fans and lighting in our small home. I do not expect any ‘commons’ to exist beyond the local farms and blacksmith.
Mike on Thu, 31st Oct 2013 1:44 pm
“OH my GOD, we ALL are gonna DIE!(But give me more money for my inefficent solar panels and your soul will be rescued) -*sarkasm off*
Ghung on Thu, 31st Oct 2013 3:42 pm
I don’t get a sense that this article is about maintaining current BAU for our societies at all. It’s a warning that we need to start managing collapse the best we can. Of course, those who are reaping enormous profits from the current paradigm will continue to deny the problem, at least publicly, until the bitter end. What they say and what they actually believe are likely compartmentalized.
I recently made the acquaintance of an oil geologist who bought a nice farm out of foreclosure near here. He is spending a lot of money to take this property off-grid with solar and micro-hydro and wanted to consult with me on batteries, etc. It didn’t take long to realize that he is fully peak oil aware, and understands the implications of declining eroei to our society. He used a term I’m guilty of using: “Woefully unprepared”. I got the impression that, in his part of the oil patch at least, awareness of depletion is high (they deal with it every day), but there’s no point in discussing it. We agreed to meet on a later date, and he went back to his high-paying job in Houston. Like I have, he’s come to the realization that managing collapse will be largely a personal, local endeavour. He could climb the highest building in Houston, scream “PEAK OIL!” at the top of his lungs, and no one would listen. Unlike this gentleman, I’ll tell anyone my views of peak oil, peak everything, climate change, and offer up the best solutions and response I can. While society-at-large most assuredly will continue to ignore me, at least I tried, and may in fact convince a few souls into attempting some sort of alternative response.
As for those on this forum who insist that renewables aren’t, and won’t be, the salvation to our civilization’s pending cavalcade of crises, I submit that they are missing the point. There are many arguments that these responses are pointless, but those of us who’ve been walking the walk for years now understand that getting as many people on renewables as we can, in the time left to do so, isn’t putting lipstick on a pig. I, for one, am not looking for excuses to do nothing. I expect Jeremy Leggett feels the same way.
From J-Gav, above: “Whether or not we avail ourselves of the small window of opportunity which still remains is another question…” … a question that those of us who still have choices to make must answer for ourselves. The human collective isn’t even asking the right questions, not really, and unlikely to respond, collectively, in anyway that will matter much. Still, I applaud Leggett for giving it a go.
Dave Thompson on Thu, 31st Oct 2013 3:50 pm
The warning bells are starting to ring, is anyone listening?
shortonoil on Thu, 31st Oct 2013 3:52 pm
As depletion winds down the oil age, most of the $88 trillion in infrastructure dedicated to its production, processing, and distribution will be retired. Of course, a small part of this immense investment my be retrofitted to what ever will try to replace it, but most of it will end up in the scrap heap. The world now depends on a vast interwoven, integrated manufacturing system to provide the essential components of the society. From drilling rigs to bobby pins, somewhere a factory is dedicated to their production. Without petroleum to drive the production, and transportation of billions of items daily this whole system would come to a stop. The $88 trillion lost during the demise of petroleum, will only be the tip of the iceberg. Every $ increase in the price of a barrel of oil is now reflected, by many orders of magnitude, in that total!
rockman on Thu, 31st Oct 2013 8:24 pm
“He could climb the highest building in Houston, scream “PEAK OIL!” at the top of his lungs, and no one would listen.” Just to confirm that Ghung isn’t exaggerating I’ve been a petroleum geologist in Houston for 25 years and no one in the oil patch here ever talks about PO. It would be the same as someone bring up the topic of whether one expects the sun to rise tomorrow. IOW why waste time discussing the undeniable. Granted that isn’t what you see in the press releases from the oil patch. But I’ve known a few of the folks that write that PR and not one of them buy into what they preach. In fact it’s such a long running gag it doesn’t even make us smile anymore.
GregT on Thu, 31st Oct 2013 8:49 pm
“As for those on this forum who insist that renewables aren’t, and won’t be, the salvation to our civilization’s pending cavalcade of crises, I submit that they are missing the point. There are many arguments that these responses are pointless, but those of us who’ve been walking the walk for years now understand that getting as many people on renewables as we can, in the time left to do so, isn’t putting lipstick on a pig.”
I think that you would be surprised. Most of us here that ‘insist’ that ‘renewables’ aren’t the solution to our impending crises, have already installed, or are planning to install, alternate energy infrastructure. The points that have been conveyed by myself, and many others, is that they are ; a) not renewable, or b) not a long term solution. While they could make the ‘transition’ to a sustainable future more comfortable, alternate energy is not the answer to our predicament. Energy production, is in fact, a very large contributor TO our current predicament, if not the sole cause of it.
Ghung on Thu, 31st Oct 2013 10:21 pm
@Rockman – When I heard of this guy, I hoped it was you 😉 I guess you’re not the only oil geo who gets it.
@GregT- Yeah Greg, all we can hope to do at this point is to make the transition as liveable as we can, for as many as we can, while contributing to the mess as little as possible. So-called ‘renewables’ aren’t perfect but at least they are reliable, under local control, and less damaging than most other choices. My plan is to keep a few lights on as long as I can, and avoid increasing costs of other energy sources.
I always think of folks in third world villages who have only a few panels, a battery, and an electric light in each hut for their kids to read under after dark. Beats sitting in the dark.
GregT on Thu, 31st Oct 2013 10:49 pm
Ghung,
I completely agree.