Below is a copy of an open letter to Prime Minister Stephen Harper re: to officially and publicly address the end of Cheap Oil and the arrival of Peak Oil. In case I receive a reply it will be posted to Sticky Feet blog. Sticky Feet is not waiting with baited breath…
Feel free to riff this letter.
It is bewildering that national governments have done nothing to address Peak Oil. Even energy industry insiders are now very worried that oil production has peaked or will do so imminently. We watched as a credit bubble collapsed into a global financial crisis and learned nothing. Now, we are on the verge of the collapse of the 50 year old Cheap Oil Bubble that could have far greater ramifications and still we do nothing.
Fiddling while Rome burned.
Follow us in a reader, your homepage or on Twitter:
Other Options: Click Here to Subscribe by Email or Email to a friend, share on your social network or bookmark:
The Right Honourable Stephen Harper
P.C., M.P., Prime Minister of Canada
Office of the Prime Minister
Dear Prime Minister:
I am sure you are aware of the recent U.S. Department of Defense Joint Forces Command report warning about Peak Oil. The DoD’s report reflects a seminal moment for the both the world and the U.S. government, for it is the first time that a U.S. government agency has officially acknowledged the imminence and danger of Peak Oil. Few national governments have publicly addressed the issue, yet the evidence of Peak Oil from studies by highly credible experts indicates that it is long past time that national governments engage officially and publicly in a Peak Oil debate, followed quickly by comprehensive action.
To quote from the DoD’s report:
“By 2012, surplus oil production could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 mbd”.
The report further warns that alternative energy technologies are not viable in the short run given the capital cost required for their installation at considerable scale. The U.S. DoD’s conclusions potentially confirm the worst fears about Peak Oil, that the window for an orderly transition towards a post hydrocarbon economy is closing quickly as the peak may already have arrived. The U.S. Department of Energy, which one would expect to be leading on this issue, remains in official denial (although there appears to be unofficial/non-public action). The media also remains silent, which is an astounding feat given the grim SOS delivered by the DoD. The Obama administration has not commented and the DoD states that its report should not be viewed as official government policy. Yet, even if the DoD report is likened to scenario planning it portends a serious and unaddressed economic threat.
Few other government’s have made any official public pronouncements regarding Peak Oil. However, in February 2010 the U.K. Industry Task-Force on Peak Oil and Energy Security issued its second report:
“The Oil Crunch: A Wakeup Call for the U.K. Economy”
Notably, several large British corporations were sponsors of the task force, including Sir Richard Branson’s Virgin Group. The report received significant public attention and, as a result, Lord Hunt, the U.K. Energy minister has been forced to respond. Note that the widely cited industry report British Petroleum Statistical Review also now dates an oil peak (by 2020 at 91 billion barrels per day production). That the BP annual industry report takes this position is no less a watershed moment than the U.S. DoD report.
Only has the Swedish government stood alone in publicly preparing a strategic Plan for Peak Oil. Former Prime Minister Goren Persson proclaimed Peak Oil a threat in 2005 and formed a committee tasked with preparing a strategy to make Sweden fossil fuel independent by 2020. Other than these examples, we have had a few Peak Oil murmurs from the International Energy Agency and some top oil industry executives warning about looming and sustained oil shortages, although many couch their concerns in what must frankly be called denialist language…it’s a veritable Kabuki dance, the same one performed by those in positions of responsibility in the bubble buildup that turned into the global financial crisis (see National Governments Remain Silent on Peak Oil, a previous post at Sticky Feet). In Canada, perhaps the strongest and most credible voice on Peak Oil has been Jeff Rubin, the former Chief Strategist and Chief Economist at Canadian Imperial Bank of Commerce (CIBC). Jeff is the author of “Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization“.
In the wake of the global financial crisis, policy makers and bankers have explained their failure to address the brewing crisis by rationalizing that no one recognized the existence of a credit bubble. This rationalization is demonstrably false – the public record reveals many experts issued warnings but to no avail. Now, with an oil crisis brewing, policy makers and energy industry insiders are repeating the same mistakes. They are generally absent from the debate. Where they do engage it is to label Peak Oil proponents phony Cassandras and to publicly issue comforting words about how technological advances are growing recoverable oil reserves and ushering in alternative energy technologies. These statements offer false comfort:
(a) Honest energy industry experts will acknowledge that improvements in technology have had more impact in increasing the speed at which we extract oil from wells rather than on any significant affect on increasing recoverable reserves. Some people may tout the excellent results of enhanced oil recovery (EOR) technologies on particular oil fields, but this success does not extend to every well. It should also be noted that much of the “modern” technology that is called EOR has actually been in use for 30, 40, 50 years or longer.
(b) Those individuals who point to such data as increases in proven reserves and years of remaining reserves to seed doubt about Peak Oil either do not understand reserve reporting and how reserves are assessed over time or are being blatantly dishonest. This issue is inside baseball stuff – “conservative” financial accounting/reporting versus economic/geologic estimates of recoverable oil. Financial reporting by design shows proven reserves rising over time (portions of probable and possible reserves are shifted into the proven category as drilling activity enables more precise estimates of how much oil will ultimately be recovered). These financial/accounting figures are the main focus of financial markets when public oil companies report annual and quarterly results. The rules were written so that oil and gas companies would not report inflated reserves, but it works well for them as once they “bank” reserves, guaranteed increases in reported proven are baked in. The second data set, economic/geologic estimates of recoverable oil, tends not to shift significantly over time; yet, these are the relevant figures for reserve assessment on a macro level, and they indicate the arrival of a peak. Only the date is a quibble, which is due to the poor data provided by some countries (for example, in the 1980s and 1990s several OPEC member countries showed significant one-time increases in reserves without providing any justification; the best analysts, among them industry insiders, consider these phantom reserves and attribute the magical increases to political factors associated with quota allocations; these OPEC reserves have not been adjusted for the more than 125 billion barrels of production in the intervening years and, today, perhaps 300 billion barrels of reserves reported by OPEC are phantom, representing about 25% of the remaining global reserves of approximately 1,260 billion barrels; I noted that a March 13, 2006 report on Peak Oil by our Parliamentary Information and Research Service fell into these analytical traps, so the caliber of information on which Members of Parliament are basing decisions is discouraging).
(c) Many people point to the increasing production of the Alberta oil sands and other non-conventional oil reserves, such as shale, as devastating to Peak Oil. This is not true – Peak Oil estimates factor in supplies from these resources, appropriately recognizing the long, slow lead time for ramping up production, a reality that was confirmed when projects in Alberta faced labour shortages and enormous capital cost increases in recent years.
(d) While alternative energy technologies, and even under-utilized technology like nuclear energy, will play an integral part in our energy future, it is critical to recognize their significant transition barriers in terms of time and capital resources, as underscored by the DoD report. In addition, (i) most alternative technologies are not yet economically viable and so probably require comprehensive national focus; (ii) alternative energy solutions, such as solar, also face resource constraints because supplies of inputs are either not available in sufficient quantities or cannot be scaled up in sufficient time to meet an unexpected and significant increase in demand; (iii) we must recognize that some of the alternatives touted, such as hydrogen and various battery technologies, are really just power storage devices, and the energy they require must be produced elsewhere. While I am a big proponent of alternative energy technologies, I believe the sector suffers from hype – there is as much pie in the sky, wishful thinking mal-investment and politically driven subsidies that will never pay as there is reality – so no one should take comfort in the belief that alternative energy technologies will manifest themselves to save us from a disastrous outcome. They need work.
(e) Some people tout alternatives such as biofuels as good solutions, but it’s apparent that we have not comprehensively addressed how some biofuels could impact cropland available for food production in a Peak Oil scenario. Indeed, we’ve experienced food price shocks in recent years that some analysts attribute to diversion of commodities and cropland for bio-fuel feedstock. The global food price shocks were significant, yet so far less than 2% of our 87 million bpd oil consumption is represented by biofuels.
(f) From time to time a large new oil discovery is announced and is often touted as undermining Peak Oil; when these finds are reported they are given little historical context. In reality, the data shows that (i) on a global level total new oil discoveries have been on a consistent declining trend decade after decade since the 1950s and 1960s – back then annual new discoveries were nearly 60 billion barrels, whereas now we are averaging about 10 billion; (ii) on a micro level, the average size of new oil fields has also been on a significant, consistent downward trend over the same time period; (iii) since 1984 we have consumed more oil each year than found (global consumption is about 30 billion barrels per year). Only in an upside down world, such as when exuberant celebrations ensued following the recent oil discoveries off the coast of Brazil, do exceptions prove the rule. Here is an insightful graph that portrays the history of discovery and annual production at The Oil Drum courtesy of a Colin Campbell newsletter. The complete Oil Drum report is here.
When I first began researching Peak Oil 10 years ago it was considered a tin foil hat theory. That is no longer the case, as evidenced by the caliber of experts raising concerns more recently, including those listed in this letter and referenced links, and many others. It may turn out in retrospect that the fears about Peak Oil are overblown. However, the decision about whether Peak Oil requires immediate public action and engagement by policy makers should not be determined by one’s belief in one side of a binary outcome. Proper risk management practice would acknowledge the following:
(a) that the probability of Peak Oil is significantly greater than zero and
(b) the arrival of Peak Oil could have catastrophic consequences on the economy.
It is obvious that many very credible experts believe that both (a) and (b) are true. Even if one believes that Peak Oil is years away, given the very long lead time required to transition and prepare for a hydrocarbon constrained world proper risk management requires that planning for this contingency ought to begin immediately. This planning should address the following aspects, amongst others:
(a) how to shorten the time required for making alternative energy technologies viable and to hasten market adoption;
(b) how to change our overall energy mix so that we can, in the short and medium term, release some natural gas for use in transportation from electricity generation and oil sands extraction. It has been proposed that oil sands operations could be powered by nuclear energy; that idea deserves consideration;
(c) how to revamp our personal and public transportation systems and goods distribution infrastructure;
(d) reassessment of urban planning and zoning practices in conjunction with provincial and local government; in addition, a review and revamp of building codes towards the most advanced green standards so that energy savings from natural gas heating and nuclear, coal and hydro power generation can be redirected elsewhere;
(e) review of the agricultural industry and food security issues in light of a Peak Oil world that may put significant stress on domestic food producers and cause a change in international agricultural trade patterns;
(f) an assessment of the impact on the structure of the domestic and international economies, including the impact on manufacturing and international trade patterns;
(g) national security implications;
(h) an assessment of the impact on all levels of government, including on revenues and expenditures;
(i) a reassessment of public policy for mitigating global warming – Peak Oil will cause differentiated impacts on the prices and use of oil, natural gas and coal; currently, global warming policy is based on an energy mix base case that assumes increasing supplies of oil for decades into the future; the base case scenario needs to be adjusted in a Peak Oil world to project future energy mix and carbon dioxide emissions assuming sustained annual drops in global oil production; Peak Oil should not be used as a reason to avoid action on global warming – greenhouse gas emissions may not decrease sufficiently in a Peak Oil scenario that causes a shift in the energy mix towards greater reliance on coal and natural gas (especially if coal to liquids or gas to liquids technologies are more widely adopted).
(j) an assessment of the impact on the labour market, living standards and the social safety net – there is a direct correlation between the availability of cheap energy and economic growth; the reality of Peak Oil could usher in a new paradigm, one where GDP growth is zero at best and potentially decreasing annually for years to come until we complete the transition to an alternative energy driven and highly energy efficient society; under a Peak Oil scenario, the next generation may actually be the first to experience a lower standard of living than their parents, but it will be bearable if the transition is managed properly.
Grass roots Peak Oil awareness groups have cropped up in cities around the world, including in Canada. On the west coast, a few municipal governments are preparing Peak Oil action plans. However, since Peak Oil is an international scale issue what is required is a comprehensive nationally coordinated plan in conjunction with lower levels of government and other countries. Make no mistake, the effort required is greater than for the moon shot. Many years from now we may look back in hindsight and realize we were in this moment at the apex of the 50 year Oil Bubble, for that is the age of cheap oil. Will we fiddle while Rome burns?
Thank you kindly for your attention to the issue. For further reference I have listed below many of the Peak Oil “Cassandras” who have issued warnings about our energy and economic future. I urge you to listen; I welcome a reply and discussion.
- the 2010 U.K. Industry Task Force on Peak Oil and Energy Security sponsored by no less than six well-heeled blue chip corporations including the luminous Sir Richard Branson’s Virgin Group;
– the 2010 U.S. Department of Defense Joint Forces Command report;
– a 2010 interview with Glen Sweetnam, a senior DOE official, in Le Monde;
– a 2010 report in Business Day reporting on a warning issued by Christophe de Margerie, CEO of Total, the French oil company;
– a 2010 report sponsored by Kuwait University and the Kuwait Oil Company;
– the 2009 report in The Guardian newspaper on Peak Oil warnings by International Energy Agency insiders;
– a 2009 speech by John Hess of Amarada Hess, the oil company;
– a 2009 admission by Jose Sergio Gabrielli, CEO of Petrobras, the Brazilian oil company
– a 2008 Welsh National Assembly Report;
– a 2007 U.S. GAO (Government Accountability Office) report urging action;
a 2007 admission by Sadad Al-Huseini, a Saudi Aramco executive;
the 2006 baseline review by the Government of Ireland assessing vulnerability;
– a 2005 U.S. Department of Energy sponsored report: “Peaking of World Oil Production”;
– a 2005 study by the Government of Sweden;
– Jeffrey Rubin, former Chief Economist and Chief Strategist for Canadian Imperial Bank of Commerce, writing and speaking for a decade;
– Matthew Simmons, an energy industry investment banker and adviser to Dick Cheney’s Energy Task Force, writing and speaking for a decade.
From the author of Sticky Feet blog
Inside the box thinking. And plotting.
The Honourable Michael Ignatieff, M.P., Leader of the Official Opposition
The Honourable Gilles Duceppe, M.P., Leader
The Honourable Jack Layton, P.C., M.P., Leader
The Honourable Jim Prentice, P.C., M.P., Minister of the Environment
The Honourable John Baird, P.C., M.P., Minister of Transport, Infrastructure and Communities
The Honourable Lawrence Cannon, P.C., M.P., Minister of Foreign Affairs
The Honourable Tony Clement, P.C., M.P., Minister of Industry
The Honourable James Flaherty, P.C., M.P., Minister of Finance
The Honourable Christian Paradis, P.C., M.P., Minister of Natural Resources
The Honourable John McCallum, P.C., M.P.
The Honourable David McGuinty, M.P.
The Honourable Marc Garneau, M.P.
The Honourable Joe Volpe, P.C., M.P.
The Honourable Gerard Kennedy, M.P.
Senator The Honourable Marjory LeBreton, P.C.
The Honourable James Cowan, Senator of the Senate.
The Honourable Libby Davies, M.P.
The Honourable Gordon Campbell, Premier of British Columbia
The Honourable Ed Stelmach, Premier of Alberta
The Honourable Brad Wall, Premier of Saskatchewan
The Honourable Greg Selinger, Premier of Manitoba
The Honourable Dalton McGuinty, Premier of Ontario
The Honourable Jean Charest, Premier of Quebec
The Honourable Danny Williams, Premier of Newfoundland and Labrador
The Honourable Sean Graham, Premier of New Brunswick
The Honourable Darrell Dexter, Premier of Nova Scotia
The Honourable Robert Ghiz, Premier of Prince Edward Island
The Honourable Dennis Fentie, Premier of of the Yukon
The Honourable Floyd Roland, Premier of the Northwest Territories
The Honourable Eva Aariak, Premier of Nunavut
Follow us in a reader, your homepage or on Twitter:
Other Options: Click Here to Subscribe by Email or Email to a friend, share on your social network or bookmark:
Filed under: Bubble Trouble, Canada, Economy, Energy Efficiency, Environment and Sustainability, environmental economics, International Relations, peak oil, Political Economy, sustainability Tagged: | alternative energy, biofuel, BP Statistical Review, Canada, cheap oil, China bubble, china economy, coal, Colin Campbell, consumption, economics, energy, financial crisis, food shocks, global financial crisis, global warming, Goren Persson, greenhouse gas, Hubbert, hydrocarbon, India economy, India recovery, Jeff Rubin, leverage, living standards, national politics, natural gas, Obama administration, oil, oil bubble, Oil crash, oil reserves, oil sands, overconsumption, peak oil, Peak Oil denial, peak oil fraud, phony oil reserves, pollution, reform, Richard Branson, Stephen Harper, Sweden, United Kingdom