A collection of UK companies including Arup, Virgin Group and Solarcentury just released a report they hope is a wake-up call for oil importing countries like the UK and the US.
Entitled “The Oil Crunch: Securing the UK’s Energy,” the report brought together insight from a range of sources that demands serious attention about the future of world oil supply after 2010. The first major voice (called Opinion A) is that of oil industry expert Chris Skrebowski, editor of Petroleum Review. He explains his projections of oil supply over the next few years based on a database of upcoming megaprojects, those projected to produce at least 50,000 barrels per day. And his findings are sobering…
He predicts that new production will barely keep up with oil field declines by 2011. And based on his 4.5% decline rate (much lower than the 9% decline rate rumored to be in the upcoming IEA report), global oil production would begin to decline by the end of 2013. These declines would cause new record oil prices as a rising world population sends demand higher, especially in China, India and oil producing countries. The decline in production would likely accelerate, potentially crippling the global economy that depends on oil as a backbone for transportation and much more.
Opinion B is Royal Dutch Shell Vice President Jeremy Bentham who calls the 2010s the “end of cheap oil.” He agrees that the current energy oil production forecasts by the EIA and IEA are overly optimistic. But he believes oil supply beyond 2015 will look more like a plateau than Skrebowski’s decline prediction. The report aligned itself more with Opinion A in concluding that a slow decline was likely by 2015, with the potential of a supply collapse (fall >4% per year).
Since the report is focused on the UK, it went into some detail about the dramatic implications of such decline and laid out a series of recommendations to address it. The country is especially vulnerable since they have suffered from dramatic oil and gas production declines since ~2000 at an annual rate of 7.5%. But the recommendations mentioned the silver lining I try to stress daily: that the important transition from oil can be a sustainable energy revolution that also mitigates climate change. From rapid growth of offshore wind farms to solar PV and heating systems, the report highlights the potential of hundreds of thousands of jobs being created during the transformation of their country’s energy system.
One thing lacking in their report was an update that included projected impacts of the current financial collapse. Demand has been reduced to levels much lower than the 1.6% per year the report uses to show a production shortfall by 2012. The US EIA currently estimates a .4% growth in global demand in 2008, and less than 1% growth in 2009. It is possible that the global economic downturn could reduce oil demand enough to maintain an oil capacity surplus through 2014. But today’s credit crunch and fall from summer’s record prices may also dramatically delay oil projects so that supply begins to drop earlier than forecast.
Whether demand or supply are more affected by our financial troubles, this report does a solid job of laying out a crucial public policy issue and evaluating different methods to address it in a way that works best for its host country. It’s time a similar report comes together for the US as an update to the Hirsch Report commissioned by the US Department of Energy in 2005. My hope is that this blog and future SET reports can help in this process to change our energy habits in a way that mitigates oil supply constraints and climate change together.