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Davos delegates warned of imminent oil crisis

Davos delegates warned of imminent oil crisis thumbnail

Some of the planet’s richest nations are to hear a warning that a global oil crisis could happen as early as next year

(Pic: Shell)

(Pic: Shell)

By Alex Kirby

A British businessman will tell world leaders meeting in Switzerland today that it is dangerous to argue that fracking for shale oil and gas can help to avert a global energy crisis.

Jeremy Leggett, a former Greenpeace staff member who founded a successful solar energy company, has been invited to the annual World Economic Forum meeting in Davos from 22 to 25 January. The theme of the meeting is The Reshaping of the World: Consequences for Society, Politics and Business.

Leggett told the Climate News Network: “The WEF likes to deal in big ideas, and last year one of its ideas was to argue that the world can frack its way to prosperity. There are large numbers of would-be frackers in Davos.

“I’m a squeaky wheel within the system. I’m in Davos to put the counter-arguments to Big Energy, and I’ll tell them: ‘You’re in grave danger of repeating the mistakes of the financial services industry in pushing a hyped narrative.”

This refers to the way in which banking leaders had “their particular comforting narrative catastrophically wrong, until the proof came along in the shape of the financial crash”.

Leggett founded Solarcentury, the UK’s fastest-growing solar electric company since 2000. He also established the charity SolarAid which aims to eradicate the kerosene lamp from Africa by 2020, and chairs the Carbon Tracker Initiative.

His book Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis was published in 2005, and his latest, The Energy of Nations: Risk blindness and the road to renaissance, in 2013.

‘Sunset industry’

Leggett says the conventional oil industry is facing an imminent crisis, because existing crude oil reserves are declining fast, it is having to find the money for soaring capital expenditure, and the amount of oil available for export is falling.

“Big Oil is still extremely powerful and well-capitalised”, he says, “but it is fast approaching sunset. The profitability of the big international groups – like Exxon, Shell and BP – is a real worry for investors, and they’ve been largely locked out of the easy oil controlled by national companies – just look at BP and Russia.

“Gas? Unless the price goes up, the whole US shale gas industry is in danger of becoming a bubble, even a Ponzi scheme. All but one of the biggest production regions have peaked already, and losses are piling up. This is an industry that’s in grave danger of committing financial suicide.”

A linked message that Leggett will deliver is that there is a growing danger of a carbon bubble building up in the capital markets. He says investors who think governments may agree stringent and strictly-enforced limits on greenhouse gas emissions might decide their investments in oil and gas are at risk of becoming worthless.

Crunch next year?

There is little sign yet that such limits are likely any time soon. But Leggett says that is to miss the point: “You don’t have to wait until agreement is close, or even probable. You have to believe only that there’s a realistic chance of policymaking which means assets might be stranded.”

He will also tell his audience “to take out insurance on the risk of an oil crisis, by accelerating the very things we need to deal with climate change”. Chief among these, he says, is the need to channel funds withdrawn from oil, gas, and coal into clean energy instead – though he acknowledges that, as a renewable energy entrepreneur himself, he may be accused of self-interest.

Leggett fears a world oil crisis could occur as early as 2015. And when it comes, it will certainly mean “ruinously high prices”, for a start. But it will mean something more, he says.

Last December he worked with a US national security expert, Lt-Colonel Daniel Davis, to organise the Transatlantic Energy Security Dialogue. Leggett has a regard for the views of people like Davis. “The military are better than your average politician or consultant to Big Energy at spotting systemic risk”, he says.

Leggett says military think-tanks have tended to side with those who distrust “the cornucopian narrative” of the oil industry.

One 2008 study, by the German army, says: “Psychological barriers cause indisputable facts to be blanked out and lead to almost instinctively refusing to look into this difficult subject in detail. Peak oil, however, is unavoidable.”


15 Comments on "Davos delegates warned of imminent oil crisis"

  1. Northwest Resident on Fri, 24th Jan 2014 9:17 pm 

    Folks, get ready for 2015. That year was positively ID’d in the Joint Operational Environment of 2010. That year has popped up in comments and predictions made by other highly placed government and military individuals in a couple of other articles I have read in the past. And now here it is again, being told to the group of billionaires. They are subtly telegraphing a message. We all know this financial farce called the economy can’t go on much longer, and I think what we’re being told is that 2015 is when it ends. If you’re not ready for TSHTF by the end of this year — or as ready as you could possibly be — then you’re not taking things seriously enough.

  2. dsula on Fri, 24th Jan 2014 9:21 pm 

    Damn it. But resident idiot John_A told me even with an EROEI of 0 all is well, because EROEI don’t matter.

    And secondary idiot OF2 told me that as long as stocks are going up, all is well. Because the more money is created the better for all of us.

    And tertiary idiot meeme_uk told me the more CO2 in the air the better for all of us, because life likes CO2.

  3. rockman on Fri, 24th Jan 2014 9:28 pm 

    Good luck Jeremy. I suspect when he begins to speak many see that as the cue to take a pee break. LOL.

    “Some of the planet’s richest nations are to hear a warning that a global oil crisis could happen as early as next year”. Very comforting that the wealthy leaders of those countries don’t consider the additional $2 TRILLION MORE the economies are paying for oil today then they were just 10 years doesn’t qualify as hard times. They also apparently don’t see much negative with trillions of $’s and tens of thousands of lives expended “exporting democracy to the Middle East”. Yep…in the future we’ll think back to these as the “good old days” we’re going thru now.

  4. Kenz300 on Fri, 24th Jan 2014 9:35 pm 

    The sooner we diversify away from fossil fuels the better.

    Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste are the future.

  5. Dave Thompson on Fri, 24th Jan 2014 10:35 pm 

    2015 would seem about right. Here in the US the Presidential election will be in full swing. Just like the last time we had a oil price spike and melt down. Stock up on building your community relations. Make friends in your area where you live, seeing that you won’t be driving to far.

  6. J-Gav on Fri, 24th Jan 2014 10:38 pm 

    Northwest – In 2010, they/we didn’t know fracking was going to take off the way it has. About 8 years ago I pegged the critical year as being 2016, but now I have to admit it might drag on a bit longer, but not a lot longer. That doesn’t mean police state lock-down preparations won’t be continuing in the meantime of course, and we’re likely to see increasingly disturbing evidence of that in 2014-15-16 …

    Rockman – Yep, these are indeed the ‘good ole days,’ already. Most people are not psychologically prepared for that at all, which doesn’t neceassarily make for optimistism about a ‘smooth’ transition.

  7. Northwest Resident on Fri, 24th Jan 2014 11:01 pm 

    J-Gav, good point, but I’m not so sure that the military strategic planners didn’t have a pretty good idea that the next 4-5 years would see a lot of fracking going on when they put this document together. Here’s a cut-and-paste:

    A severe energy crunch is inevitable without a massive expansion of production and refining capacity.
    While it is difficult to predict precisely what economic, political, and strategic effects such a shortfall
    might produce, it surely would reduce the prospects for growth in both the developing and developed
    worlds. Such an economic slowdown would exacerbate other unresolved tensions, push fragile and
    failing states further down the path toward collapse, and perhaps have serious economic impact on
    both China and India. At best, it would lead to periods of harsh economic adjustment. To what extent
    conservation measures, investments in alternative energy production, and *** efforts to expand petroleum
    production from tar sands and shale *** would mitigate such a period of adjustment is difficult to predict.
    One should not forget that the Great Depression spawned a number of totalitarian regimes that sought
    economic prosperity for their nations by ruthless conquest.

    They also describe severe financial outlook of increasing debt, problems with China economy and issues with fiat currency. All in all, it looks like everything they warned about is or is on the way to becoming true.

  8. Davy, Hermann, MO on Fri, 24th Jan 2014 11:05 pm 

    Systematic financial risk is the clear and present danger. The oil crisis is the backstop. If a likely financial crisis occurs the oil crisis will be averted because demand will plunge causing a relative oversupply causing prices to fall causing investment in production to fall. The current oil supply issue is always there to prevent a return to a healthy global economy. I just don’t see it being the crisis item for now. 2007 was the year of the oil price crisis effect. We are now in a new normal of shrinking real growth so oil supply will be adequate for now. In 4 to 5 years the depletion issues and plummeting Capex will drive out enough production for oil to become the crisis item if the financial system is not gone by then. My money is on a financial crisis initially. Oil will follow down the road manifesting itself before 2020.

  9. rockman on Fri, 24th Jan 2014 11:07 pm 

    J-Gav – I would still argue you were rather spot on. So 8 years ago did you expect oil to bounce up to $146/bbl and then settle back to around $100/bbl? If you had you might have stretched the time line out a bit. IMHO we are hip deep in the PO sh*t hole today regardless of the exact date of global PO.

  10. Northwest Resident on Fri, 24th Jan 2014 11:25 pm 

    All, what we aren’t putting into the equation is one critical component — PANIC. I believe that we aren’t that far away (around, say, 2015 or so) when economic situation deteriorates to the point that all the MSM lies and political double-speak no longer calms “the herd”. Once the herd gets spooked real good, and it doesn’t take much, then herd mentality takes over and once that happens, it is game over. Worldwide panic will result in economic collapse of unprecedented proportions. Dog-eat-dog mentality takes over, and it doesn’t matter how much oil is left in the ground because once the herd starts stampeding, the militaries of the world will take total control of whatever oil production is left and use it to whatever ends they decide is needed. From that point on, humpty dumpty lies in pieces, and nothing can put it back together again. Total breakdown. And I’m an optimist.

  11. Feemer on Sat, 25th Jan 2014 12:44 am 

    From reports i’ve red about fracking, it seemed like the earliest fracking would peak would be 2016. I still think the end of 2015 or beginning of 2016 is a good bet. Like it said, the big formations are pretty fracked out, but there are other formations, albeit smaller and much harder to get to. Really though, I see a global oil crisis more around 2017-2020, as Russia, China, and parts of Europe (Poland and England) develop their shale. I am in no way saying shale will save us, but it has created a small buffer. In response to ” develop renewables as quickly as possible,” although I am for this, they will do very little in the way of transport fuel, and thus do very little for an oil crisis.

  12. Feemer on Sat, 25th Jan 2014 12:49 am 

    Despite the actual timing of a world oil/energy crisis, it is VERY clear, at least to me, that things are starting to get turbulent and unstable. The UN is warning about maximized agricultural yields, at a time when the population is set to hit 8 billion in 2025. Energy prices are steady or are going up, food prices are going up, CO2 emissions are going up. Everyone should: have and grow a large garden, have a rain water collection system, have knives and guns, be biking to work as much as possible ( I do 9 miles a day in summer), and despite people’s ignorance and unwillingness to believe in peak oil, we should all be trying our hardest to inform people.

  13. Stilgar Wilcox on Sat, 25th Jan 2014 2:26 am 

    “Once the herd gets spooked real good, and it doesn’t take much, then herd mentality takes over and once that happens, it is game over.”

    Good point NWR. I actually don’t think it’s just a matter of an oil supply shock necessarily (although that would certainly initiate a deep recession), but all that is needed is enough time with ongoing pressure from high priced oil.

    Developed countries that are the big importers shouldering these high prices are taking on massive debt loads. QE has been used for the last 5 years with tapering having been initiated this month in the US down to 75b. Even though that’s only a 10b a month reduction we are already seeing the stock market stop it’s record ascent and have a few days of triple digit losses.

    My prediction is the Fed will not be able to taper to zero. On the way down it will be obvious we are headed for a recession and Yellin will opt back to 85b a month. In other words, at today’s oil prices the economy can only muster some growth via huge deficits and QE. Without them the economy sputters, contracts, and like you say at some point panic sets in.

    2015? Ah, who knows.

  14. Keith on Sat, 25th Jan 2014 2:29 am 

    Fracking needs low interest rates to operate at the current level. Interest rates go up, fracking goes down. nuff said.

  15. Richard on Sat, 25th Jan 2014 3:55 pm 

    It may happen, it may not happen that way. There are quite a few factors contributing to this, and the slow speed of it happening.

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