If all the oil the world ever had could be shown on a dashboard fuel gauge, where would the needle be pointing now? Peak oil pundits, who have long said that the world will in time run out of oil, would answer “halfway”.
This school of thought has enjoyed only fringe status until recently, but is now fast moving to the mainstream as crude oil prices continue to break new records. Oil was nudging $130 a barrel this week.
Halfway, on the face of it, is not bad news: we still have the other half left.
But if we have indeed reached the halfway mark, this means that oil production has peaked and will decline inexorably from now on until the last possible barrel of oil has been taken from the ground.
At the same time, demand — driven by continuing economic growth across the globe and in India and China in particular — is for more. Much more.
Under these conditions oil prices will continue to behave just as they have in recent times: they will go up and up.
One major investment house, Goldman Sachs, has predicted that oil will trade at $150 to $200 a barrel within the next six to 24 months. $200 a barrel translates into R12 a litre for diesel in Gauteng.
Why should the world be running out of oil? Peak oil theory, which has been around for several decades, has been shown to apply in every major oil-producing country including the United States, the United Kingdom (where oil is drilled from under the North Sea), Venezuela and Russia. All these major oil producers have passed their production peak.
Further evidence for the peak oil theory comes from the fact that, despite increasing exploration, fewer large wells are being found. Where fresh oil reserves have been found or are known to exist — deep below the ocean floor, for instance, or in other inhospitable locations — they can be technologically challenging to extract.
Continuing political instability in key regions such as West Africa and the Middle East further adds to production uncertainties.
Opec remains officially bullish on its ability to meet demand, but the reserves of member countries such as Saudi Arabia remain state secrets and there are signs that even major producers are battling to ramp up their production.
Saudi King Abdullah, the British Financial Times reported this week, has said: “I keep no secret from you, when there were some new finds, I told them: ‘No, leave it in the ground. With grace from God, our children need it.'”
The subject is studied by the Association for the Study of Peak Oil (Aspo), which has chapters in countries across the globe. Its South African affiliate last year completed a study for the presidency as part of an exercise to model the future of the country up to 2019.
An Aspo study, Energy Futures for South Africa, says that oil discoveries around the world have been declining since the 1960s.
“The evidence from real oil wells [for example, in the US South and the North Sea] provides empirical evidence that oil production roughly follows a bell-shaped curve, rising to a peak and then falling,” says the document.
“Approximately two-thirds of the oil-producing nations have passed their individual peaks.”
The Aspo report says that because oil is used to make most products and to fuel transport, shortages will have significant effects on the economy, financial markets, transport, mobility, agriculture, food, population, geopolitics and conflict.
The consequences of oil depletion can be mitigated, says Aspo, through energy-efficient transport systems, switching to renewable sources of energy, changing people’s patterns of personal consumption, enhancing food security through localised and organic agriculture, pursuing “eco-village” residential development and constructing energy-efficient buildings.
South Africa, Aspo says, has both strengths and vulnerabilities in facing the challenges of global resource depletion and climate change.
Strengths include relatively low oil dependence, well-established synthetic fuels, abundant solar energy and substantial wind, uranium and coal resources.
But weaknesses include the country’s high dependency on imported oil and liquid fuels for transport as well as the energy intensity of South African industry.
South Africa has strength in food security in that it is a net exporter of food and has some subsistence agriculture. Its weaknesses in this area include the fact that commercial agriculture is oil-intensive, only 13% of the land is arable and there are recurring droughts.
Some peak oil pundits believe that the production peak was reached in 2006. As evidence, they point to flat production in recent years despite growing demand.
The Aspo submission to the presidency says that available evidence suggests that global oil production will probably decline between 2007 and 2020 “with significant risk of rapid decline and price spikes”.
Simon Ratcliffe, chair of Aspo in South Africa says resource depletion applies in the first case to oil but that fuel sources such as coal and uranium face the same depletion prospects in the coming decades.
Globally, coal is projected to deplete after 2025 and uranium after 2013, he says.
The infrastructural costs of deveÂloping new energy sources will also continue to rise, says Ratcliffe. As such South Africa should be switching now to use sustainable, renewable sources of energy. These could include solar and hydroelectric power, the latter from Cahora Bassa in Mozambique and the giant Inga project in the Democratic Republic of the Congo.
Ratcliffe says that in the past two years he has begun to adjust his own lifestyle to adjust to the changes that resource depletion is going to bring our way.
“I have been introducing a steady set of measures such as insulating our home. I had a nice car, which I have sold. I now share a car with my wife, use public transport and if needs be, hire a car for a few days when necessary. Our household has dramatically reduced the amount of fuel we use.”
Peak oil scenarios
Business as usual
Massive price increases for air flights and road transportation are foreseen by the Association for the Study of Peak Oil (Aspo).
“South Africa’s inadequate public transport infrastructure provides no viable alternative; demand for motorcycles and bicycles and for people to work from home increase; road maintenance costs soar and road infrastructure deteriorates,” says the organisation.
Rising prices and fuel shortages will place commercial farmers under pressure.
“Food prices rise significantly and severe food shortages increase; government intervenes in the pricing and supply of food.”
Under these conditions local government administration breaks down, local conflict over resources intensifies and the country is fragmented into small units controlled by militia.
Internationally, Aspo foresees governments abandoning negotiations to lower carbon emissions, causing carbon dioxide levels to increase to dangerous levels, setting the course for catastrophic, irreversible climatic conditions later in the century.
Renaissance
Government establishes energy-saving quotas for its departments, new regulations to ensure energy-efficient buildings and declaring coal a national asset.
Aspo says energy can be saved as business is increasingly conducted over the internet and industries are re-tooled in favour of technologies using renewable energy resources.
Agriculture is encouraged to become more localised, small-scale and labour-intensive and to use biofuels.
Government encourages a limit on population growth.
South Africans reduce their use of fossil fuels, complement existing nuclear power with renewable energy and change to highly energy-efficient appliances.
Transnet develops a sustainable transport system using energy from renewable resources and electrical light-rail systems are installed in cities.
New urban and rural planning creates self-sustaining communities, including “eco-villages”, where living and work spaces are integrated so that people can commute by walking or cycling. — Energy Futures for South Africa, Aspo