x Abu Dhabi, UAESunday 21 January 2018

Peak oil theory has peaked and there is no apocalypse now

Crude keeps on coming despite an endless flow of dire predictions.

Oil keeps flowing despite dire predictions.
Oil keeps flowing despite dire predictions.

The death of the American oil financier Matthew Simmons on August 8 marks the demise of a colourful figure who deserves to be known for creating a successful investment bank and for his pioneering interest in ocean energy. However, Simmons will no doubt be better remembered for his often strident advocacy of the concept of "peak oil" that argues that global oil supply will soon reach a peak and thereafter decline irreversibly.

He was neither the first nor the most expert of those to promote this idea but his professional position gave his views particular weight. And in his 2005 best-seller, Twilight in the Desert, he was the first to throw the spotlight on to Saudi Arabia, arguing that the oil fields in this linchpin of the global business were becoming exhausted. To make sense of this, we must understand Simmons's intellectual starting point. He founded his investment bank Simmons & Company in 1974, inspired by the first oil crisis. In 1972, the Club of Rome's report entitled Limits to Growth had been published and was admired by Simmons. It argued that humanity was facing shortages of key materials, including oil, metals and food.

In tune with this zeitgeist, and as the Iranian Revolution drove oil prices to new heights, then US president Jimmy Carter was to say in 1979: "Oil wells are running dry all over the world." Of course, during the 1980s and 1990s, energy efficiency improved dramatically, oil was substituted by gas and nuclear power and huge new petroleum supplies emerged in the North Sea, Mexico and Alaska. Oil prices fell dramatically.

The same happened for other resources. In 1980, Paul Ehrlich, author of The Population Bomb, a best-selling book on over-population, bet the economist Julian Simon that the price of five key metals would increase by 1990 as supplies were exhausted. Ehrlich lost: prices of all five fell and he paid out US$576 (Dh2,115). Ehrlich, incidentally, also predicted "the battle to feed all of humanity is over … In the 1970s and 1980s hundreds of millions of people will starve to death", and, on a lighter note: "I would take even money that England will not exist in the year 2000."

Now the spectre of resource depletion has returned, inspired by high commodities prices during the past decade. Yet these are the result of strong demand in Asia and the Middle East, combined with a long preceding period of under-investment. Media reports on oil almost invariably mention "depleting resources" or "the end of easy oil". But global oil reserves, as reported by BP, have risen every year for the past two decades and are now a third higher than they were in 1990, despite production of more than half a trillion barrels in the intervening period.

Colin Campbell, a retired oil industry geologist and another prominent peak oil believer, first predicted the peak year as 1989, since when global output has increased by a quarter. The former Shell geologist Kenneth Deffeyes put the peak date, rather precisely, at December 16 2005, which again has been proved wrong. Simmons predicted "a collapse of 30 or 40 per cent of [Saudi] production … sometime in the next three to five years - but it could even be tomorrow", yet the kingdom's production capacity has risen significantly since 2005. And Saudi Arabia was always a strange place to start with peak oil: even if we believed peak oil protagonists' contentions that Saudi reserves are overstated by half, the country would still be pumping less than 3 per cent of its reserves annually. When the UK's production peaked in 1999, it was extracting more than 20 per cent of its reserves each year.

Yet, just as during the 1970s oil crises, the idea of peak oil has gained particular resonance in these apocalyptic times. It has become conflated with the population explosion, with food shortages, with the very real problem of climate change and, inspired by the global financial crisis, the end of capitalism. For left-wing and environmentalist circles in the US and increasingly in the UK, belief in peak oil has become an item of faith, going beyond rational debate. On the other side of the political spectrum, disbelief in climate change similarly defies the scientific evidence.

Discussions of peak oil describe it almost as a natural calamity, like a hurricane or earthquake. Yet peak oil is not something that just happens: it is something that we cause, or at least allow to happen. If we do not invest enough, if we fail to develop new technologies, only then is there a danger of declining energy supplies. The continuing debate over peak oil, immune to facts, is increasingly sterile. It distracts us from the real problems. We have to minimise the environmental impact of fossil fuel extraction and tackle climate change. The world's poor need affordable food, fuel and electricity. And we must ensure investment in future energy supplies, of all kinds, and improve energy security by strengthening international co-operation.

These are difficult, intractable issues, requiring hard work and perseverance. Alarmist books sell well. But rather than posting hysterical blogs, listening to the loudest pundit or being terrified by apocalyptic tracts, it would be better for those concerned about humanity's future to learn the facts and get out into the world to do some practical good. Matt Simmons's Ocean Energy Institute was one part of that; it is a pity that his followers do not emulate the example.

Robin M Mills is an energy economist based in Dubai and the author of The Myth of the Oil Crisis