Crunch time

My musings last week on “peak oil” drew a fair number of comments, not least a wonderfully thought-provoking essay from “Oil Lady” arguing that energy availability controls the market – not the other way round. The post that particularly caught my eye, though, came from a bon viveur commenting on someone else’s blog: “I’m more worried about peak wine than peak oil.”

This time last week I wasn’t convinced that we face “an irrecoverable fall in global oil supply by 2015 at the latest”, which is the view of the UK’s Industry Taskforce on Peak Oil and Energy Security. So have I changed my mind?

Well, not on that precise point. But, at the risk of stating the obvious, peak oil is not the issue. The real danger is the “oil crunch” that could well happen even if the world’s oil supplies plateau in the next few years rather than fall off dramatically.

Whatever the level of global oil production, the industrialisation of China and other developing countries is likely to open up a big gap between supply and demand. A “convulsive shock in the global economy”, as Oil Lady puts it, seems entirely plausible. Is this crunch almost upon us – as she and other campaigners warn?

I’ve been running through some arguments that offer reassurance.

Here’s the first … “we’ll just move on to other energy sources”. In the same way that “the stone age didn’t end because of the end of stones, the oil age will not end because of the end of oil,” Erik Haugane, chief executive of the Norwegian oil company Det Norske, told the BBC’s Newsnight programme last week.

Second, “there is enough coal to buy us time”. Oil’s share as a percentage of total world energy consumption is in decline – and the deficit is being made up mainly by coal. It will last another 119 years, according to BP’s Statistical Review of World Energy 2010, published last week. (This assumes last year’s rate of production – which, of course, may be surpassed.)

Third, “have you heard how shale gas is about to change the world?” Technological breakthroughs mean that many of the economic and technical concerns about exploiting America’s huge shale gas reserves are being dealt with, Gideon Rachman wrote in the FT last month:

“The rise of shale gas, which can be used to produce electricity, reduces dependence on domestically produced, but dirty, coal. If cars powered by electricity or gas improve, shale gas would also reduce reliance on Middle Eastern oil.”

So nothing to worry about then? Not as such. There is inertia in the system – it takes time for fledgling technologies to take on global proportions. As analyst Gregor MacDonald puts it on

America “is still running on coal and oil. And the intractability of this infrastructure is why energy transition is so hard. It is [not] serious therefore to say that it will be easy or quick to start running it on different energy sources.” (Hat Tip: Norman Talarud-Bay)

Managing the transition to new sources of energy will require solving problems of scalability and infrastructure. But even if coal takes up some of the slack, we still might not escape an oil crunch. This is because oil is not just a fuel – it has two other important markets.

As Oil Lady points out, it is also a feedstock for the production of manufactured goods, including plastics, computer components, and exotic alloys and materials. And, the nitrogen/petroleum component of the super-fertilisers and super-pesticides used on today’s giant farm-factories:

“At the moment, oil is still plentiful enough to service all of the above roles all at the same time with no conflict, But once global oil supplies start falling even just a tiny bit short of what our planet-wide industrial machine is used to, then a convulsive see-saw effect will happen whereby oil will not be able to service all three at the same time, not in as generous portions, and not consistently. When any of those three start suffering, the other two also suffer. We can try and shore up just one of them with alternatives, but there is no way we can shore up all three at once, not with today’s skimpy menu of alternatives that are just barely at our very limited disposal, and not with such precious little time left before the systemic convulsions to the global economy begin.”

So we’re stuck on oil whether we like it or not.

I’ll be visiting friends in Dorset soon. Maybe I’ll cheer myself up with a trip to the nodding donkey at Kimmeridge Bay, close to the site of a new land-based oil strike. According to the BBC, David Brunell, who owns an exploration company, has discovered seven potential multi-million barrel oilfields at the site which he believes could be “a very, very commercial situation for all people involved”. This is what is so good about onshore, he adds. “It’s quick, it’s clean, it’s easy. There is risk, but there’s less risk.”

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Christopher Cook is an FT editorial writer. Before joining the FT in 2008 as a Peter Martin Fellow, he worked for three years for the Conservative party.

Lorien Kite is deputy comment editor, a post he took up in 2009 after four years as a commissioning editor on the analysis page. He joined the FT in 2000.

Ian Holdsworth became assistant features editor in 2009 and was previously chief production journalist for the features pages.