The title above was borrowed from the Financial Times. Last week the World Economic Forum in Davos celebrated its 40th anniversary, and one of the sessions addressed the world’s energy security. The chairperson for the session was Daniel Yergin, the founder of CERA (Cambridge Energy Research Associates). Before his departure to Davos, the Wall Street Journal (WSJ) wrote: “All the world loves a bringer of good news, so energy guru Daniel Yergin should by all rights be guaranteed a warm welcome at Davos this week.” The news that he bore with him was that “the awful day of ‘peak oil,’ when the world will have depleted its finite hydrocarbon resources to the point where it can never again increase production, is still a long way off.” If in fact, it becomes apparent that oil production reaches a peak then Daniel Yergin has a cop-out, “The big determinants (to global energy supply) are the above-ground risks — politics, the quality of decision-making, and costs and so on.”
It is now nine years since Colin Campbell wrote the term “Peak Oil” for the first time in his first newsletter for ASPO (The Association for the Study of Peak Oil and Gas) but it would be May 2002 before “Peak Oil” was used for the first time by the world’s press. I am convinced that they would never have discussed “Peak Oil” at Davos if the topic was not relevant. Of course, Daniel Yergin will never admit that “Peak Oil” is a geological reality and his statement in the WSJ shows that he has now found a suitable explanation for “Peak Oil,” namely problems above ground.
The fact that nobody from ASPO was invited to discuss energy security in Davos shows that they are not interested in anyone bearing unpleasant news. The fact that the journal Energy Policy accepted our paper “Peak Of The Oil Age” for publication last November could have been a good reason for an invitation, but one never came.
The bearer of unpleasant news became, instead, Thierry Desmarest, the chairperson for Total. In his speech he said that oil production would never exceed 95 million barrels per day (Mb/d) and in his press release he clarified his view by saying, “peak oil is still a problem; it will be reached in ‘about ten years,’ but not today.” Total Co. has previously mentioned 100 Mb/d and that they are now saying 95 Mb/d shows that they are approaching the conclusion that my Ph.D. student Fredrik Robelius presented in his thesis. That scenario had a maximal production of 93 Mb/d in 2018. The requirement for that level of production was that production from 7 giant oil fields in Iraq would commence immediately. The fact that this has been delayed makes it all the harder to reach that production level.
For the oil industry, it is important to argue against “Peak Oil” since they need risk capital for future projects. The price tag that the CEO of Shell, Peter Voster, mentioned is “$27 trillion of investment over the next 20 years to meet demand (I hope the number is right)”. At the same time the chief economist at the IEA, Fatih Birol, expressed the opinion that he was doubtful whether it was sensible for the oil industry to make these enormous long-term investments since “demand for oil from industrialized nations has already peaked.” Apparently, the reason for this was “the combination of improved fuel efficiency and the increased use of renewable energy meant demand for oil from developed countries would never return to the record levels seen in 2006 and 2007”. That may be true, but the demand from developing nations will increase markedly. One can see that the IEA is preparing an explanation for “Peak Oil” that does not involve “depletion” of oilfields.
The strongest statement against Peak Oil came from Saudi Aramco and its head Khalid al Falih, “There is too much rhetoric in the public domain about moving away from oil.” I assume that ASPO is one of the actors he does not like. He does not believe that the world needs to worry about Peak Oil, “We feel that the whole issue that came to the surface and created a lot of concern about peak oil is behind us.” From the report of his speech, it is also revealed that he is worried that investors will direct their money elsewhere than oil.
BP’s CEO Tony Hayward pointed out that there was a “supply challenge” for the industry which would have to increase output to 100 million bpd. Of course, he wants production to be 100 Mb/d so as not to lose the prestigious bet with me that oil production in 2018 will be higher than 86 Mb/d.
A collective impression from the reports that I have read is that institutions and oil companies are assembling an explanation for Peak Oil that says that the resources exist but that the will to invest is lacking. Of course, the scale of investment is essential for future oil production, but there is nobody that believes that investments in the USA can return its production to the level it was in 1970. The same applies to other nations that have passed Peak Oil, e.g. Norway, the UK and, recently, Mexico. The world’s oil production is the sum of that of individual nations, and if all countries reach Peak Oil, then the world will also be at/passed its peak of oil production. The most important message is that the world cannot increase oil production significantly – we have reached the “Peak Of The Oil Age.” It is this message that should have been delivered to the world’s leading politicians. Who knows? Maybe there will be an invitation to next year’s World Economic Forum in Davos?
Below are some of the articles I have read:
Wall Street Journal: Energy Guru Brings Good News to Davos
Businessgreen: Davos energy bosses divided on “peak oil” risks