"I think a lot of governments are taking it very seriously but they are not mostly talking about it in public because nobody wants to frighten anybody. [...] But I think they understand perfectly well that peak oil is a reality."
- Nicole Foss (a.k.a. Stoneleigh from The Automatic Earth).This podcast makes for sobering listening. It consists of two interviews. The second, and cheerier, one is with Antony Froggatt, Senior Research Fellow at Chatham House, who lays out the key trends in global energy resources. Froggatt helped to write a recent white paper by Lloyd's of London, titled "Sustainable energy security: strategic risk and opportunities for business" (executive summary can be found here).
From the forward: "We have entered a period of deep uncertainty in how we will source energy for power, heat and mobility and how much we will have to pay for it. [...] The bad times have not yet hit." In the interview, Froggatt discusses the problems with an economy based on just-in-time supply in a world that is no longer able to rely on cheap energy. He believes we may be heading for more supply crunches like 2008 in which the price spiked to almost US$150 (a five-fold increase in a matter of years). He then partially attributes the following economic downturn to this spike.
He points to three fundamental trends in the energy sector:
(a) Declining oil output from existing wells: "the current output from existing oil production globally is decreasing by about 4% per year. So just to maintain the current output for oil will require the discover and exploitation of a new Saudi Arabia every three years."
(b) Surging energy consumption in emerging economies: "If we carried on using energy in the same way we do at the moment, we would need 40% more of it by 2030."
(c) Increasing international recognition of the threat of climate change largely due to fossil fuel combustion.
All three combine to mean that "the age of cheap oil is over. [...] The current energy system will have to change". The only questions are when and how abruptly and smoothly this energy transition occurs. Previously, a transition on anything like this scale has only been achieved about once per century, and with momentous social and economic implications. We have mere years to achieve a larger transition than we've managed in the past only with concerted effort over many decades.
But that is the optimistic interview.
The first interview (transcript here) is with Nicole Foss (her background and credentials are summarised here), who calls herself a "big picture person". She also speaks of possible interactions between a further financial crisis and peak oil. However, rather than seeing rising oil prices undermining global economic growth, she sees a dangerous relationship in the other direction. She expects the next few years will witness a larger global credit crunch leading to a "greater depression" in which we'll look back at the 1930s as the good old days. She argues that the various government stimulus packages in 2008 merely postponed and made worse the inevitable deflationary period.
She is also very concerned about peak oil, but believes the timeframe for finance is shorter than for energy and so "finance is going to re-write the energy debate. [...] Demand collapse is going to set up a supply collapse. [...] Low prices are going to mean no investment, no exploration, no maintenance." So she predicts a double-whammy: a financial crisis for the next few years, which in turn will set up a longer and larger energy crisis. And she reminds us that being in debt during a major credit crisis isn't likely to be pretty: "When you have a large amount of indebtedness, the civilised methods of getting out of debt are likely to disappear." She is primarily talking about the US situation, but we live in a globalised world.
Listen with a grain of salt, but I'm not sure we can safely ignore these warnings.
The German article mentioned briefly in both interviews is here.