by Jeremy Leggett

In January 2004, Shell drops a bombshell. We are sorry, dear financial regulators, they say, but we don’t seem to have as much oil as we said we have. Outrage in the City. In March it gets worse: our CEO and head of exploration have been telling the board porkies, we fear, says a contrite board. The biggest scandal in British corporate history duly unfolds.

Why?, I ask myself. As an ex creature of the oil industry myself, I have always assumed there is enough oil for decades to come, just as I have been told by my peers. I know that a few oil geologists have been saying, since the mid 1990s, that the peak of production would come around 2010. The dean of the early peak oil camp is Colin Campbell, a geologist like me trained by Stuart McKerrow at Oxford. I always assumed – simply assumed, I’m ashamed to say – that he was wrong. Now I’d better check out what is going on, I decide. This is very important. The world is assuming it can run growing economies on growing supplies of generally cheap oil for several decades to come. If it can’t, and supplies prove to be rapidly shrinking and ever-more expensive, all bets are off in the energy field.

Meanwhile, The war in Iraq is not going well. Some rather unreasonable people are attacking the oil infrastructure, we hear. For this and other reasons, the oil price starts climbing. It crosses $40. Then $45

In my spare time, I immerse myself in the Oil and Gas Journal, and other such organs. I meet Colin Campbell, Chris Skrebowski, and the other peak-oil pioneers, and read all their work. By 2005, it has become clear to me that they are right: the peak of production will happen this decade, or not long thereafter. The bad news is that, like the peak-oil pioneers, I can’t see how we escape an economic crash. The potential silver lining to the cloud is that the tools needed for weaning society off its oil addiction can be the same as those needed for heading off the worst of the climate-change threat. Provided panicing governments and companies don’t pile back into coal, try and melt 20 million barrels a day from tar sands, and so forth.

The G8 Summit of 2005 comes and goes in July 2005 with Bush as intransigent as ever on global warming, and Blair forgetful of his promises as usual. But deep in the summit statement is a significant passage, asking the Saudis to please be a little more transparent about exactly how much oil they really have. The western companies have been banished from the desert Kingdom for a quarter of a century, and the world economy has come to be a bit dependent on the unverified story reported by OPEC countries each year being true. There are concerns among Finance Ministers, no less, that perhaps there is a component of doubt.

Then in August perhaps the most likely person in the world to know the truth, Saudi Aramco’s former head of exploration & production, comes out and tells the New York Times that Saudi Arabia will never pump 20 million barrels a day, as the world is expecting. Indeed, he says, it will find lifting output from ten-and-a-half to twelve more than difficult.

By now the mainstream financial institutions are becoming interested in peak oil. We are no longer dealing with what someone rather unkindly called the domain of hobbyists, but a front-page issue for the Wall Street Journal, thanks to Mr Campbell and his fellow whistleblowers. Nothwithstanding, peak oil has yet to make much of an impression on the traders who fix the oil price. But they have plenty of other worries to keep the price high for the moment, from Mr Putin’s machinations in the east to Mr Chavez’s manoeuvres in the west, via many another problem in between.

We enter 2006. Petroleum Intelligence Week sees records in Kuwait saying the country only has only half the oil it officially claims. President Bush throws gasoline on the oil-price fire by admitting the obvious in his State of the Union address: that America is oil addicted, and has to kick the habit. OPEC blasts back the next day, wondering how he expects them to invest in more development in the face of that kind of dumb rhetoric? More wobbles in the markets. Oil and gas nationalism erupts around the world. And of course, instability in the Middle East – that increasingly understated euphemism – builds apace. Israel launches another mad military adventure. The price jumps above $75 for the first time, and on August 8th reaches the heady record of $79.

Along the way, ExxonMobil, true to its greenhouse-denial form, takes out an ad in the New York Times saying “there is no sign” of peak oil. “The theory does not match reality.” ChevronTexaco and Total, certainly, seem to have a different view. The former takes out wonderfully obscure adverts all across the world, full of angst about how much oil might be left. BP’s CEO tells the world there is plenty, and the price will probably fall right back to $25. The IEA warns that world is on an energy path “doomed to failure.” IEA boss Claude Mandil says the current path will require116 mbd by 2030, with most of the increased supply coming from Saudi Arabia, Iraq and Iran. Non-OPEC supplies will peak early next decade, pushing the price as high as $130 a barrel. “This energy scenario is not only unsustainable but doomed to failure,” says Mandil. $20 trillion of investment will be needed to meet demand. It is far from certain that this investment will actually occur, he warns. The apparent soaring investment by oil companies is illusory, because of inflation in drilling costs. The FT describes all this as “apocalyptic.”

Who is right? I would not like to be the CEO of BP or ExxonMobil once shareholders, and society in general, find out and start looking back in anger.

And so we enter 2007, looking forward to an ASPO meeting on which surely the attention of the world should be focussing.

Jeremy Leggett is CEO of solarcentury. His latest book, Half Gone, conflates the peak oil and global-warming problems and looks to the future. The Carbon War, published in 2000, covers the history of the global warming from 1989 to 2000.

http://www.aspo-global.org/aspo6/enlightenment.cfm

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