Wednesday, October 05, 2005
Bunch of zealots!
Crude oil is not ‘produced’, it is ‘extracted’.

Arguably, peak-oil may never be out of the news again. The recent crude price spike, driven by two hurricanes in the Gulf of Mexico shortening supply, demonstrate just how little slack exists in today’s oil market ¹.

Few argue that demand for crude will continue to increase, despite developed economies consuming it more efficiently (per person and per dollar of GDP) than ever before. Growing population negates any efficiencies in the USA and India’s and China’s burgeoning economies and aspiring citizens continue to drive new demand for energy. In the last 10 years, oil demand grew by 20%. The world’s economies now consume 31 billion barrels of oil each year.

But supply remains the big question mark. Investment in exploration is tumbling whilst investment in new kinds of extraction technology is rising, indicating that oil companies are redoubling their efforts to tap already discovered fields. A few prominent oil forecasters - Simmons, Heinberg et al - are predicting that non-Saudi oil is virtually at peak and even Saudi oil production capacity maybe heavily over estimated. Royal Dutch-Shell estimates there is plenty of gas in the tank yet – about 20 years til maximum ‘production’ - but even it admits Hubbert’s Peak² is not simply a theoretical construct.

For government and business peak-oil remains a risk-management issue, rather than an impending reality. If you believe peak-oil is here right now, and you invest millions of dollars in alternative business models, and you are wrong, your competitive and political edge is blown out the water. But a business with a more benign view of peak-oil could hold back on mitigating rising energy prices - and be spared - if the market and the political climate has been generally slow to react. But while the prospects of peak-oil may yet be hotly contested, the implications of rapidly inflating oil prices are enormous.

Brisbane City Council’s Civic Cabinet recently considered a discussion paper on peak-oil³. BCC, much like any other organisation, could be severely impacted by rising oil prices. It would have huge implications for asset management and policy, not only in the direct cost of its operations, but also on the city’s politics and long range land-use and transport policy.

Not surprisingly, the Lord Mayor labelled the author and the report’s sources ‘zealots’ and ordered an immediate shut down of all internal investigative work into peak-oil and, for good measure, into that other extremist green socialist conspiracy, climate change.

The Lord Mayor, the Honourable Campbell Newman, has invested much political capital in getting five road tunnels built under the city over the next 20 years. His ambition is solve Brisbane’s congestion issues through a massive road building program. The last thing he needs is some bureaucrat suggesting reasons why $4.7bn would be better spent on – say – public transport or supporting local communities.

Peak-oil, like most things ‘environmental’, is an issue that contemporary political institutions have great difficulty in dealing with. But in this case it’s not long-term nature of the issue which creates the disjuncture - for if you believe Heinberg peak-oil is here now – but the nature of democratic decision making. No voter wants to be told the party’s over⁴.

Car drivers, whilst not a well-organised political interest group, remain a numerically influential voting block. Give them roads and they will love you for it. This is how representative democracies work.

But if you dare tell them they must have less of something – like less personalised, independent, comfortable and affordable travel – they’ll crucify you. People like to read bad news, not vote for it.

For a business, failure to acknowledging peak-oil doesn’t make it go away. But in politics it does. Whilst a business must consider its long-term sustainability, a politician struggles to see beyond the next crisis, or at best, the next election.

That Brisbane’s tunnels will be initially owned and operated by the private sector, in a public-private partnership, offers some hope. However, the successful private consortium will have so many built-in hedges that the burden of a financial failure of the tunnels – from peak-oil reducing traffic – will ultimately rest with people of Brisbane.

But Campbell Newman knows he will be long gone by then.

Notes

1. The latest figures by the US energy intelligence administration shows that global demand is now exceeding supply. In the first quarter of 2005, the world consumed 84.38 million barrels a day but supply was at just 84.12 million. (The shortfall is made up by the release of strategic reserves.)


2. Edward King-Hubbert is the now infamous geologist that put forward the theory that oil wells and by extension, global oil extraction, rises to a peak, before flattening out and tailing off to exhaustion. His theory has been proven time and again.


3. "Future energy and peak oil", Discussion Paper, 2 September 2005.


4. "The Party’s Over" was the title of a 2003 book on peak-oil and its implications by Richard Heinburg.

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