Later On

As you know, I believe that we have passed Hubbert’s Peak and will soon see oil production begin its irreversible decline as demand continues to increase. (The peak refers to production, not to total reserves—the peak is typically hit when as much oil is in reserves as has been taken out, but the oil left in the ground becomes progressively more difficult to extract and to refine.) New Scientist has a compelling article on the likely effects of oil scarcity. I’ll give the beginning, but to read the whole thing, you need to subscribe, which I recommend ($39 for online only, $69 for print and online both). The article, “Oil: The Final Warning,” is by Ian Sample and begins:

Howls of protest have been echoing round the globe as the price of oil punches through record highs with every passing week. In the UK, last month, hundreds of truckers descended on London to demand that planned fuel tax rises be scrapped. In continental Europe, where police clashed violently with truckers, two people died during the protests. Fishermen and farmers blockaded ports and depots in protest against the rocketing cost of diesel. Similar scenes played out across South America and Asia.

In the US, the world’s thirstiest oil consumer, gasoline reached an all-time high of $4 per gallon, forcing the administration to lean on domestic producers and consider suing foreign oil exporters for allegedly rigging the market. When President Bush implored Saudi Arabia, which controls the lion’s share of the world’s proven reserves, to pump more from its wells, the Saudis came up with only a token increase.

The situation is not about to improve. Bankers Goldman Sachs and Morgan Stanley have both suggested that the crude oil price could rise from the high of $139 a barrel (as New Scientist went to press) to $200 or more, while the financial speculator George Soros predicts that rising oil prices could send the US economy into recession.

Expensive fuel at the pumps is just the start. These battles over the price of oil could be the harbinger of something even scarier. There is a growing realisation that we are teetering on the edge of an economic catastrophe which could be triggered next time there is a glitch in the world’s oil supply.

A number of converging forces are making such an event more likely than ever before. First, there is the spectacular rise in global oil consumption, which, according to the International Energy Agency (IEA) now stands at 87 million barrels of crude (about 10 billion litres) a day. Most geologists now accept we have reached, or will imminently reach, peak oil. Some fields in the US and the North Sea have been pumped dry and production is becoming increasingly concentrated within fewer countries. Add a boost from speculators betting that things will get even worse, chicanery by the Organisation of Petroleum Exporting Countries (OPEC) cartel which over the past two years has added Angola and Ecuador to its ranks to mask the decline in production of its existing members, and it’s not hard to see why prices have been forced ever upwards. But price conceals the much more complex mess we’re in.

In the past, it has usually been possible to ride out any disruption to world oil flows – whether from accidents or hostile acts – by pumping more oil from the ground. That spare capacity has now all but vanished, as oil producers cash in on soaring prices by extracting as much of the stuff as they can. “There is absolutely no slack in the system any more,” says Gal Luft, executive director of the Institute for the Analysis of Global Security, a Washington DC-based think tank specialising in energy security. It is this lack of wriggle-room that has brought us to the brink. …