Life at the summit

Michael Klare

• Last Updated: July 04. 2008 12:10AM UAE / July 3. 2008 8:10PM GMT

Truculent drivers: the increase in fuel taxes has caused strikes in India and around the world. AFP

Energy experts continue to debate whether the world has already reached a peak in global oil output or if the moment of maximum yield still lies years ahead. But if we could look back to today from 50 years hence, the difference between a peak in 2008 or, say, 2015 is largely immaterial: for all practical purposes we are now perched on the summit of the depletion curve of world petroleum, and will remain in this territory – a rounded crest when seen from afar, not a sharp apex – for some years to come. There is nothing further to be gained by arguing about the precise moment of peak oil, or from seeking to delay its arrival. From now on, our overarching challenge is to adjust to life on the petroleum summit.

One might naturally assume that life on the summit would be especially comfortable. After all, there is more oil being pumped today than ever before. It is likely, moreover, that we can count on continued high levels of output for another decade or so, probably augmented by additional liquids derived from Canadian tar sands, Rocky Mountain shale, biofuels and other “unconventional” fuel sources. But the price of oil has shattered all previous records and there appear to be no barriers to its continued rise. Other vital products derived from petroleum or reliant on its ready availability – petrochemicals, plastics, pesticides and food – have also risen in cost, adding to our economic woes.

What, then, distinguishes this new era from that which preceded it? In the past, global petroleum output largely kept pace with the growth in international demand. This meant that major petroleum consumers – states, corporations, public utilities or individuals – could procure new oil-devouring systems with full confidence that adequate and affordable supplies would be available to fuel them in the years ahead. Car buyers could acquire a giant SUV assuming that gasoline would remain relatively affordable; farmers and truckers could buy powerful, fuel-guzzling vehicles believing that diesel would remain at an equivalent rate.

The pre-peak period of growth and abundance also provided considerable elasticity in the face of crisis and turmoil. When Iraq invaded Kuwait in 1990 and an international embargo was placed on both Iraqi and Kuwaiti crude, Saudi Arabia and other pro-western suppliers were able ramp up production, averting a global energy shortage and the resulting economic meltdown. The Saudis played this critical role on several other occasions, keeping the world well supplied with oil even in the most demanding of times.

But life on the summit will be very different. Although the global energy industry is pumping out more crude than ever, it is no longer capable of increasing output in tandem with ever-rising international demand. According to the latest projections from the US Department of Energy, world petroleum demand will rise from about 86 million barrels per day in 2007 to an estimated 106 million barrels in 2025. Some of these added barrels – perhaps 8 or 9 million per day – will be provided by unconventional sources, but a large share will have to come from conventional petroleum. But a growing number of analysts believe that the industry is now at, or close to, its maximum rate of output. This means that ever-increasing demand will constantly be chasing stagnant supply, thus driving up prices – precisely the situation we see today.

Even more worrisome, all elasticity has disappeared from the market. With every major producer pumping at full speed to satisfy soaring demand – and cash in on record high oil prices – there is virtually no spare capacity left in the global system to cope with extraordinary situations like a new Middle Eastern war or a severe hurricane season. This means that every new report of a terrorist attack in the Gulf or a pipeline explosion in Nigeria – or hints of a US or Israeli air assault on Iran – sets off a buying spree for oil futures, pushing prices to new records. Much of this is being attributed to a speculative frenzy, but essentially it is a product of the disappearance of elasticity in the system. And with this condition likely to remain the norm for the indefinite future, we should expect periodic price spikes.

In the end, however, the most distinctive characteristic of the oil summit is the fact that in the long run global petroleum production can only go in one direction: downwards. Though we may perch in this fortunate realm for a decade or so, enjoying the historic peak of global oil output, we must accept the reality that this unique moment will eventually come to a close. When this will occur, and how rapidly global output will fall, cannot be foreseen; but there is no escaping the decline in world oil output.

Because the oil summit will extend over another decade or so, it is easy to fall into denial and behave as if the eventual decline in output is so far into the future as to not require serious concern today. And, for the most part, this is the way most consumers are behaving. Although high gasoline prices in America, for example, are forcing motorists to cut back on summer driving plans and to trade in their old gas-guzzlers for more fuel-efficient automobiles, few are abandoning their reliance on private motor vehicles as their prime means of transportation. Meanwhile, automobile ownership in China, India, and other rapidly developing nations continues its meteoric rise. All this ensures that global oil demand will continue to rise.

While such behaviour is certainly understandable, it would be a grave mistake to persist in denying the fundamental realities of life on the summit. The global market has more oil than ever before – but not enough to cope with major crises and certainly not enough to satisfy unbridled increases in demand. From now on, we must view petroleum as a precious commodity, to be used prudently and for the most valuable purposes; we must also take steps to reduce our vulnerability to crisis and turmoil, and slow the rise in international demand.

Oil has many vital uses: as a transportation fuel, as a source of energy for home heating and electricity generation, as a feedstock for petrochemicals and for a wide variety of industrial applications. It is used to propel cars, lorries, planes, ships and trains. At present, most of the world’s oil supply – an estimated 74 per cent, according to the US Department of Energy – goes to transportation, with light vehicles (cars, vans, pickup trucks, and SUVs) accounting for about two-thirds of that amount. As the supply of oil becomes more constrained, however, communities and governments will have to decide whether the existing allocation continues to make sense or whether other priorities should prevail.

Given the importance of oil and petroleum-derived products in agriculture, for example, it would be prudent to reserve a certain share of global oil output to farming needs, lest a lack of supply lead to worldwide hunger and starvation. Another share should be reserved for pharmaceuticals, pesticides, lubricants, and other vital petrochemicals. Within the transportation field, moreover, priority should be given to aviation fuel over light vehicle fuels, given the importance of air travel to international commerce and tourism.

Using oil more prudently means avoiding its wasteful or unnecessary consumption. By driving less, using public transportation more and trading in our gas-guzzlers for super-fuel-efficient vehicles (or gas-electric hybrids), we can use our time on the oil summit to prepare for the day when we must descend to the less bountiful territory ahead. We can also develop the petroleum alternatives – biofuels, liquids derived from coal and natural gas, hydrogen fuel-cells and so on – that we will need once oil becomes truly scarce. Increased conservation and the accelerated development of oil alternatives will also help us to cope better with any oil shocks that do occur in the years ahead, and provide an attractive model for energy policy in the developing world.

Life on the oil summit may seem like the best of all possible worlds – and it could be, from an energy-use perspective, if we use this rare moment to begin the transition from an oil-centred world to one in which petroleum will be reserved for its most valuable applications, while other fuels come to play a pivotal role in supplying global needs.

Michael Klare is a professor of peace and world security studies at Hampshire College in Massachusetts, and the author, most recently, of Rising Powers, Shrinking Planet: The New Geopolitics of Energy (Henry Holt / Metropolitan Books).