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Friday, May 20, 2005

The End of Cheap Oil: It's Time We Talked By Peter Willis

SANE Views
Vol.5, No.11, 19 May 2005

The End of Cheap Oil: It's Time We Talked

By Peter Willis

I recently had the pleasure of accompanying the US author Richard Heinberg on a lecture tour of South Africa, focusing on his contention that the global peak in oil extraction is very close and very significant. Although he himself is a genial man with a good sense of humour, his message is sobering. He readily acknowledges that his thesis is controversial (meaning there are people who disagree with his analysis, which is no surprise) but the logic of his central argument is compelling and was not effectively challenged in any of his fifteen public engagements while here.

He and others point out that oil – the most potent form of easily accessible energy we have ever found - is a finite resource that we have been extracting for 150 years. Not surprisingly, we have found it convenient and profitable to extract the easiest first and in the last few years we have witnessed a marked failure to find major new oil fields, while existing ones are heading into decline. Indeed, it seems highly improbable that we will ever again stumble on bonanzas of the kind we were used to in the mid-20th century. What is perhaps surprising is how the world has preferred not to think about all this until it is – arguably – too late to take sufficient avoiding action. We all knew oil was finite but – let's be honest – we didn't stop to enquire when exactly it might start running out, and with what consequences?

Meanwhile global demand continues to rise for the black gold upon which we have resolutely built our entire modern way of life, with China and India now stepping on the gas in imitation of so many other countries. Demand is strong here in South Africa, too. Short of a couple of mega-field discoveries in the extremely near future (preferably yesterday, in view of the typical 5-7 year project development time lag), the world faces a classic supply/demand crunch. By Heinberg's reckoning, the crunch is due within the next two to three years.

How do we respond to such information? We would of course be right to remain alert to alternative data and analyses, in case Heinberg and those who think like him have got it wrong. At the same time we would be wrong to assume this means the end of life as we know it, abandon hope and barricade ourselves onto remote organic farms. We would equally be wrong, however, to imagine that the free-market pricing mechanism will effortlessly match supply to demand and that technological innovation, driven by the resulting higher oil price, will effect a smooth transition to the next generation of personal transport and air travel. Yet, to judge by the reactions of many to Heinberg's lectures, this is a popular response. Our generation's faith in classical economics and modern technology runs deep. We have been brought up to believe there is virtually no problem that these two in combination cannot solve, from international conflict to public health, hunger and crime, a belief we cling to despite the problems' stubborn persistence.

To be sure, prices will play a role in moderating demand as supply diminishes. No less surely, new technologies will emerge to replace at least some of our dependence on oil. But reliance on these twin 'fixes' alone would be a seriously flawed strategy.

We may assume that higher oil prices will slow demand. Then what? Those of us with decent salaries may be able to absorb the additional costs of travel in our (or our employers') budgets and the more forward-looking amongst us will hunt down a more fuel efficient car for our next purchase, thereby sending a message to the car manufacturers to speed up their efforts in this department. But what of those for whom travel costs already represent too high a percentage of their weekly budget? What advice does classical economics have for them? This could become politically complex.

Meanwhile, our touching faith in the omnipotence of technology, coupled with our preference for not looking at awkward truths like the inevitable end of cheap oil, has meant that we as nations and corporations have failed to invest heavily enough and early enough in possible alternatives to petrol and diesel (and there are very few), leaving a yawning gap today between the roughly 800 million cars running on oil-based fuel and the state of readiness of biodiesel, electricity stored in batteries or hydrogen-based fuel cells. While these alternatives all have potential, none of them is in a position to replace oil at the time when we need them to.

Meanwhile, there is every likelihood that the geopolitical landscape will change to reflect the desperation of consumer nations to secure supplies from oil-producing nations, at whatever the cost. We can therefore expect high and volatile fuel prices, coupled with periodic shortages of supply. These will probably lead to a slow-down in economic activity and the loss of many jobs. This in turn will mean there is less money available to invest in making the technological and infrastructural changes necessary to shift us away from our oil dependency. It's a catch-22 – when the economy is buoyant, there seems no great urgency about investing in alternatives to what is working well. When the underpinnings of our growth-focused economy start to wobble, the urgency is there but not the economic confidence. Here the role of government becomes critical, providing leadership and investment signals that business can work from.

Let us assume that there is at least a slender chance that the above scenario is accurate. What would happen? The actual consequences of such a situation would be vastly more complex than any one of us, or even any single group of experts, could hope to grasp and portray. So how do we think about them? Do we leave it to the energy and transport experts, or to government? Perhaps an issue of such importance and with such complex implications for the whole of our society and economy requires a wider, more determined dialogue. We know from the early 1990's what South Africans can achieve when they sit down to talk in earnest about matters of critical importance to everyone, and there are some similarities here with the approach of 'peak oil'. A world we have become deeply dependent upon is about to change irrevocably and we perhaps have the opportunity to decide whether we ride this wave of change consciously and with our eyes wide open, or get tumbled along by forces that seem beyond our control.

Ultimately, as Richard Heinberg said to a group of eager executives who were coming up with ingenious solutions to the challenges that 'peak oil' might present to their company, “Remember the end of cheap oil is not the sort of problem you can solve. It's like growing old. You can't solve that. However, you can choose to respond respectfully, wisely and imaginatively to it, so that even aging can become a source of unexpected riches.”

The peak in global oil production, whether it comes very soon or just soon, is not the end of the world. It is an opportunity for us to think, plan and act together in unprecedented ways. Let's not find out what happens if we ignore the warning signs.

Peter Willis is Southern African Director of the University of Cambridge Programme for Industry, based in Cape Town, and a Board member of the South African New Economics Network. (SANE), which invited Heinberg to South Africa.

Richard Heinberg is author of The Party's Over: Oil, War and the Fate of Industrial Societies (2003), and Powerdown: Options and Actions for a Post-Carbon World (2004)

This issue, and all previous issues of SANE Views, is available from the SANE web site at http://www.sane.org.za/docs/views/index.htm
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The South African New Economics Network (SANE) is an autonomous Network for the creation of a more humane, just, sustainable and culturally appropriate economic system in South Africa. It challenges the way prevailing economic thinking (old economics) has tended to reduce people to economic agents, the environment to property, social institutions to markets, and progress to growth in production. SANE advocates alternative economic theories (new economics) which are more purposefully designed to promote social equity and justice, community self-reliance and ecological sustainability.

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