“Dear Agony Aunt. Given that we are now seeing oil at below $50 a barrel, how is my Transition group meant to talk about ‘peak oil’? Peak oil has always been one of the foundations of Transition, but should we drop it now, or how else do we explain it? Does so much cheap oil mean peak oil as an argument is now over? In my group we can’t seem to agree, so Agony Aunt, what do you think?”
We had similar concerns in our group (Transition Reading), but we now explain the situation, in public, as follows. That, in fact, the low oil price is, in fact, a symptom of peak oil. Conventional oil production peaked around 2005-2008, and year on year it is declining by about 3.5 million barrels a day. So, to maintain the global oil supply, we need to bring on-stream the equivalent of a new Saudi Arabia every 3 years.
Most of the new oil is of the unconventional kind, meaning that it is produced offshore in deepwater, from tar sands and by fracking shale. Since these are expensive technologies, no one would have bothered with them, had the price of oil not risen to $100 a barrel and more, prior to the recent crash. Indeed, the high price urged new investment, resulting in a surge in production, while simultaneously, a weakened global economy means that demand has fallen.
The supply of oil has been enlarged by renewed output from Iraq and Libya, and by OPEC’s refusal to cut production, because they want to keep their market share. As a result of overproduction against demand, the price has plummeted from a high of $115 in June 2014, to under $50 now. Since this is less than it costs to produce much of the “new oil”, many scheduled production projects will not now go ahead. The consequence will be less oil being produced a year or more down the line. Accordingly, the oil glut will peter out, and the price will rise again.
While the return of a sufficiently high price may encourage new investment, it is unlikely that we can grow production of new oil to equal five Saudi Arabias within the next 15 years, especially from sources that are more expensive and more difficult to produce from than the oil they must serve to replace. Therefore, we can anticipate a contraction of the global oil supply within this timescale.
Today’s Transition Agony Aunt was Chris Rhodes, Chair of Transition Town Reading. What do you think? How would you advise our reader? Please comment below.