A crude analysis (7-Nov-07)

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Current revision as of 17:48, 7 November 2007

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Full story: A crude analysis (7-Nov-07)

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The new film A Crude Awakening suffers from all the deficits of the "peak oil" theory it promotes

Derek Brower is a journalist who covers energy politics

What happens when we run out of oil? Given that almost every aspect of our lives either wholly or partially depends on the steady extraction and refinement of the black stuff, its end is a scary prospect. Forget about air or road travel using the combustion engine. Forget about anything made from plastic or other synthetic fibres. Get ready for a financial meltdown, as petrodollars shrink and the world’s economies contract faster than you can say “alternative energy.”

Or at least this is the kind of fear A Crude Awakening, the latest eco-film to hit the screens, wants its viewers to feel. The film’s premise is that the end is nigh: we have already extracted (or “produced,” as the energy industry misleadingly describes the process) over half of the world’s oil reserves. And as demand continues to rise in line with economic growth, the downward slope on the graph of the remaining reserve is going to get steeper and steeper.

The film has already won a host of awards and is likely to prove popular in Britain. It might even prompt some debate about the world’s addiction to oil. After the success of Al Gore’s An Inconvenient Truth, A Crude Awakening will add more momentum to the push for renewable energy.

The problem is that the film’s main argument—that the world is on the verge of an oil crash—is wrong. However entertaining its gallop through the history of oil and its transformation of our way of life, A Crude Awakening ignores a number of its own inconvenient truths along the way.

The theory of “peak oil,” the view that the world is on the verge of an oil crash, has been around for decades. That’s not to say it isn’t true—after all, oil is a finite resource, so the end will come some day—just that its proponents have a shaky history of predicting when the peak will happen. The apocalypse just keeps slipping by.

Part of the problem is in the methodology. Peak oil theorists talk in “gross depletion.” If an oil field is discovered to have 5bn barrels of crude and a company produces 50,000 barrels a day from it, the field will deplete in just over 27 years. But that’s not the way oil fields work. Their reserves change over time, with technology and discoveries constantly adding (and sometimes subtracting) from the true reserves figure. A more accurate methodology, called “net depletion,” takes account of those changes. Extended to the total global reserve, it is the reason why the best estimations of total years' worth of remaining oil have, for the past two decades, remained at more than 40 years. That is to say, despite growing consumption and increasing extraction of oil, new discoveries have continued to keep the amount of oil we believe we have left roughly steady.

That methodological distinction might be too boring for a mass-audience movie, but it is a crucial one. And there are other problems with the film—as with peak oil theory. Both ignore the impact of the market. Many fans of this film won’t be fans of the way global markets work, but the oil one is efficient. When oil prices rise too high, as they did in 1973 and 1981, demand drops off and new alternative sources become viable. Whatever one might read about “record oil prices” this year, they remain lower than the real price high of 1981. And given that consumer economies now use oil less intensively (a legacy of the shifts made in the 1970s and 1980s), the markets suggest that there remains considerable upwards scope for oil prices before they start to bite into the world economy. When they do, oil demand will drop and demand for other sources will increase.

A Crude Awakening ignores the cyclical nature of the oil markets. The history of oil consumption suggests that peak oil will be less of a crash and more of a plateau. In fact, we probably won’t ever run out of oil. As Sheikh Yamani, Saudi Arabia’s oil minister during the price shocks of 1973 and 1981, famously said: “The stone age didn’t end because we ran out of stones. And the oil age won’t end for a lack of oil, either.” The quotation is repeated in A Crude Awakening—but the film doesn’t seem to understand its meaning.

The methodological simplicity of A Crude Awakening makes for a good campaigning documentary. But it doesn’t make for a solid argument. Nor do other more egregious omissions. The oil sands of Canada, the biggest single reserve of oil outside of Saudi Arabia, barely get a mention. When they do, they are used as proof of how desperate the situation is—if oil companies need to dig oil out of tar in northern Canada, it shows how little of the good stuff is left elsewhere.

Not really. It shows that the easy oil is increasingly in countries that don’t much like foreign oil companies now and where it is risky for them to operate. Canada, meanwhile, offers the most generous tax regime in the world to oil companies; is next door to the world’s most important consumer market; and is about as risky as brown bread. And it also holds up to 3 trillion barrels of oil in the ground.

Then there are the misleading juxtapositions. Images of ugly, desolate oil fields in Azerbaijan, Venezuela and Texas contrast with footage of those places in their producing heydays. It is a picture of the decline we can expect everywhere else. Azerbaijan, we are reminded, was once the world’s largest producer of oil. What the film forgets to say is that Azerbaijan’s oil output is far higher now than at any time in its history. Production will soon be three times its record highs in the Soviet period or before. And Lake Maracaibo, another image of dilapidation in the film, remains one of Venezuela’s most important producing regions—albeit dwarfed by the vast reserves of extra heavy crude in the Orinoco, another reserve ignored by A Crude Awakening. Basil Gelpke, one of the film’s directors, told me those images were there to show the environmental cost of depletion. It is a valid point—I’ve been to that field in Baku (see right) and it is a disgrace to the oil industry. But it is not the point that his film makes.

A Crude Awakening’s many misrepresentations undermine its credibility. But it is right about one big thing: we can’t go on using a finite resource at the same rate or greater and expect the situation to last forever. If demand continues to rise as groups like the International Energy Agency forecast, world production will need to grow from 85m barrels a day now to some 250m barrels a day by 2050. But it won’t need to, because such demand projections themselves belong to the fantasy land of economic modelling. Prices won’t let demand grow that high—and if they do, it will be because the world has, miraculously, found yet more oil to support such demand.

The film says the remaining reserve is less than half what we’ve already extracted, meaning under a trillion barrels. Conservative oil industry projections say the remaining reserve is closer to 4 trillion barrels. Who is correct? No one really knows how much oil the world had to start with, so it makes any estimation somewhat academic. But given the world’s addiction to oil, it is safe to say that one prominent group will be happy with any perception of scarcity if it means their valuable resource grows ever more profitable: oil producers and their companies. That might be the true conspiracy of the peak oil theory.

A Crude Awakening will be released in Britain on Friday 9th November

• Source: Prospect magazine

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For an overview on the topic(s), see also

• Peak Oil