If you think fuel and fertilizer prices are high now, wait until the effects of declining world oil and gas production are felt.
There is growing belief among oil executives and economists that the flow of cheap, easy-to-extract petroleum, especially top quality crude oil, is falling behind skyrocketing world demand.
Already, global oil consumption stands at around 85 million barrels per day – that’s almost a thousand barrels per second. As the booming economies of China and India begin to offer their combined populations of more than two billion people the opportunity to drive cars and enjoy a better quality of life, experts say global consumption could top 100 million barrels per day within a decade.
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When the International Energy Association (IEA), which keeps tabs on energy supply and security for the world’s leading industrial nations, released its medium-term report this summer, it predicted an imminent oil supply crunch.
It forecast increasing market tightness beyond 2010 and spare capacity from Organization of Petroleum Exporting Countries declining to minimal levels by 2012 as production from non-OPEC producers declines at an average rate of 4.5 percent per year.
The admission came like a thunderclap among the peak oil community.
“The IEA, in 2007, came to a conversion as dramatic as that of St. Paul on the road to Damascus: a blinding light and all of a sudden a skeptic becomes a convert,” said former governor general Ed Schreyer, chair of Canada’s Association for the Study of Peak Oil (ASPO-Canada), which he founded in early 2007.
He said the report was the IEA’s first “intellectually honest” look at future oil supplies, adding that in previous years it had acted as though the world’s supplies of petroleum were practically limitless.
“The reality is not that the world is going to run out of oil next year, but that the world supply of oil, for reasons of geology and ever-increasing demand, will not be sufficient and the capacity to do anything about it will have peaked,” Schreyer said.
“When that day comes, among the first sectors to suffer will be agriculture.”
Schreyer, who served as premier of Manitoba from 1969 to 1977 and now serves as chancellor of Brandon University, began pondering the question of oil depletion after leaving political life. For eight years he taught energy economics at universities in Canada and Germany.
He said modern agriculture is built upon a model that is “totally dependent” on fuel for machinery, fertilizers made from natural gas, and specialized crop management tools such as pesticides and herbicides derived from petroleum. Each step toward a global oil depletion scenario, he added, pushes humanity ever higher on what he calls the “misery index” caused by rising food prices.
Not preparing for higher energy costs is the equivalent of “living in a fool’s paradise,” he said.
“The demand for petroleum, in economists’ terms, is virtually inelastic. People will feel obliged to pay whatever it takes and there’s no restraint on price,” he said.
“Unless we have substitutes available, we’re in deep trouble.”
Schreyer said he believes that in the coming years it may become clear that 2006 was the year that cheap oil ran out.
“I think the reality is that we’re at a peak plateau right now,” he said.
“But I don’t think it matters a darn whether the peak is now or four years from now. We are not going to produce more than 85 to 90 million barrels of oil a day even if we stand on our heads.”
Preparations to accommodate higher energy prices must begin now.
“Without deliberate, major effort, we will not be ready – you can bet your life on it – because the lead time to put alternatives in place is so great.”
Schreyer, who was at Manitoba’s helm during the era of hydroelectric expansion in the province, said a major expansion of hydro, wind and nuclear energy production and a raft of conservation measures, ranging from a greater emphasis on shipping goods by rail instead of trucks and the use of plug-in hybrid cars for urban commuters, could free up petroleum for where it is most needed, such as farming.
Switching wholesale to coal would push us up against mankind’s other problem: global warming.
“The two go together inseparably. Some people seem preoccupied with one to the exclusion of the other,” he said. “But in fact we’re either going to win both those battles or we’re going to lose both. You can’t win one but lose the other.”
Given this predicament, Schreyer said planning to “decarbonize” the world economy is urgently needed.
“We haven’t got an unending supply anyway. So, why the hell are we so anxious to use it all up in the next generation? Leave some for the next two or three generations and that will slow down the CO2 emissions,” he said.
“Maybe Mother Earth will be able to cope if we cut it in half or more.”
David Hughes, a senior geologist with the Geological Survey of Canada and an ASPO-Canada member, said natural gas production in North America is falling, even as energy companies work harder in the face of diminishing returns.
“Many would say that we’re past peak. If you look at the data for the lower 48 (U.S. states), it looks like the peak was in 2001. Canada is essentially at peak right now.”
Hughes wrote in a recent article, Natural Gas at the Crossroad, that 70 percent of the recoverable gas in the Western Canada Sedimentary Basin, which stretches roughly from Alberta to Manitoba, was contained in 44,000 large pools.
Of that, 70 percent has been consumed. The remaining 30 percent is believed to exist in 400,000 smaller pools.
Production peaked at roughly six trillion cubic feet per year in 2001, at the same time that 11,000 new wells were drilled. Even with 16,000 new wells drilled in 2006, production is falling from 2001 levels.
“We’re drilling four times as many (natural gas) wells as we were in 1996, just to keep production flat,” he said.
Even as production on the continent is falling, demand for natural gas-fired electrical generation in North America continues to expand.
Coal-bed methane and unconventional gas sources might bolster supplies, but ultimately North America will become increasingly dependent on imports, he said.
“The whole issue of peak oil is not running out of resources, it’s hitting a peak in the rate of delivery, the rate that you can convert the resources into supply,” Hughes said.
