How the world must prepare for peak oilEnergy expert Robert Hirsch says the world needs 20 years to prepare for peak oil. But declining global oil production could just be a few years away.
Allianz Knowledge: You were the lead author of a groundbreaking 2005 study on future oil production and declining reserves. How is the situation three years later?
Robert Hirsch: Today, the situation is worse, and the reason for this is that it is now obvious that world oil production is already on a plateau. It has reached a high level, and has leveled off. The point at which oil production will decline is probably not far away.
If the world started (to implement solutions) 20 years before the peak oil problem, we would have stood a very good chance of beating the problem and could have avoided significant negative consequences for our economy. As it turns out, we now don’t have 20 years; we don’t even have 10. It wouldn’t surprise me at all if oil production begins to decline within the next few years.
What happens when we reach a peak in oil production?
Anybody can see how important oil is in our everyday lives. Oil is basically the lifeblood of all modern economies. When world oil production goes into decline, the decline rate will be three to five percent, maybe more if there is withholding from oil producers. Those numbers don’t sound very big, but when it comes to conserving or replacing that missing fuel, they are huge.
Oil prices are going to escalate dramatically. They were about 130 dollars this morning. That’s going to be a low price compared to what they are likely to escalate to. There will have to be rationing, and there will be huge problems as different countries try to get the oil they need to sustain some kind of economic well-being. We are racing towards a future that will be very difficult, and we have to do what is necessary to not economically kill ourselves.
What about new oil discoveries, like the recent ones in Brazil? Can they turn the tide?
They definitely cannot. To bring those new oil fields into production will require something like five to ten years. The infrastructure needed to drill and produce that oil is very significant. Contributions like Brazil will be of value, but there is no conceivable discovery or discoveries that can possibly turn the tide.
What about the people that say, once the oil price is high enough, new and unconventional sources like tar sands in Canada can be used to produce oil?
The point is directionally correct. The problem is that it takes a very long time to build the machinery that is necessary to exploit oil shale, oil sands, coal-to-liquids or heavy oil. In our 2005 analysis we looked at a worldwide crash program to bring these things into being as fast as possible. We made a number of aggressive assumptions, because a crash program is different from business as usual.
But the problem is that the magnitude of oil production loss each year will be so large and the time required to implement these alternatives is so long that the problem runs away from you if we wait too long. And we have waited too long to seriously start. Eventually, these options and energy efficiency will catch up. It is not as if the world is going to die. But right now, we are looking at a global recession that deepens each year for more than a decade because we are not prepared.
How is the situation outside the United States?
No one has really started to work on the problem anywhere in the world, except maybe in China, where they calculated a few years ago that oil decline might occur around 2012. China has begun with coal liquefaction and other technologies. In addition, they have gone abroad and bought into oilfields around the world. They have probably done more than anyone else to prepare. In most places, the problem is still unthinkable and not politically correct. Most of the rest of the world is not in very good shape to deal with the problem.
Why do you think peak oil is such a taboo?
The thing that is foremost in people’s mind when it comes to energy is climate change. People have pushed hard and governments have taken actions to cut down on the emissions of CO2. But in many cases, decisions are opposite to what we need to mitigate the problem of declining world oil supplies.
For example, coal liquefaction will make very good sense in many areas of the world. Using and liquefying coal is an available technology, but under current conditions, there would be a great deal of CO2 released from making liquids out of coal. So people say, “no, we are not going do these things because of CO2.” They do not recognize that if we don’t take action on the impending oil decline, populations are going to suffer beyond what most can imagine.
Many Americans dream of energy independence. Is it still possible?
Energy independence in the next three or four decades is impossible for most countries outside of OPEC. The reason is that the magnitude of the problem is enormous. There are a few countries that could conceive of energy independence, the United States being one. But we really haven’t started, and we can’t even agree on what we really want and what’s important. Sadly, that is one of the reasons why it is going to take a deepening recession and a great deal of personal hurt to get people to rethink their values and get motivated to do what’s needed to pull us out of the problem.
The International Energy Agency says we do not have a problem with resources, we have a problem with investments. So the situation is not that bad?
Yes, there is an investment problem, but what is hard to understand for many economists and most people is that there is a conventional oil resource limitation, and that oil is what provides more than 90 percent of the liquid fuels we are using today. We are reaching the maximum in production. It will tail off over time, but at a rate that will be extremely difficult for us to catch up to.
Will producing countries profit heavily from such a situation?
The folks that have the resources will make much more money once prices escalate. They will be in a very strong financial position.
Most people don’t recognize that those countries don’t have an obligation to produce their oil for us. We might think that those people are financially motivated, but OPEC countries now are swimming in money. They are having trouble finding places to use their money.
So when the peak oil scenario hits, a number of oil exporting countries are likely to cut back on oil production. It makes sense for them to conserve their resources for future generations. So the situation will be worse than it might be from a purely geological or investment standpoint. The King of Saudi Arabia recently said that any new oil fields discovered in Saudi Arabia will not be developed; they will be saved for future generations. It is the sensible thing that many of us would do if it was our responsibility to run an oil-producing country.
What about renewable energies? Are they a real alternative for the future?
People think that renewable energy can solve all of our problems. They don’t understand that renewable energy is very limited. Everybody knows that the sun doesn’t shine at night and that the wind doesn’t blow all the time. These are fundamentals when you seriously consider at solar cells and wind energy. People have to get off the idea that if we just went to renewable energies, everything will be fine.
A lot of this is bad news, and I think it is important that people face up to bad news, get prepared, and dig in to work the oil problem. I have faith in humans. We will beat this problem, but we are in for a significant period of discomfort.