COVER STORY
Peak oil
by around two million daily barrels a year,
and that this decline rate will accelerate in
future. Oil production projects have long
lead times, so the combination of declining
reserves and limited investments means
there is a very real danger that when
economic growth returns, oil supplies will
be inadequate to meet demand, and the price
will spike once more. And the cycle starts
all over again.
Extreme volatility in the oil price will of
course mean the same for gas and electricity.
Natural gas purchasing agreements are tied to
the price of crude, meaning that extreme
volatility in the oil price means the same for
gas and electricity – as has been demonstrated
in the past two years.
This is likely to wreak havoc with company
budgets, and share valuations – at least for
those companies that do not take steps to
reduce their exposure. A recent analysis of the For every barrel of oil we discover, we consume three – we are facing a ‘supply crunch’
correlation between energy costs and the
share valuations of logistics companies ments. (The economic slowdown has thus The good news, however, is there is absolute-
showed that financial markets can reward fuel highlighted one of the inherent flaws in the ly no shortage of energy. The sunlight that hits
thrift and punish profligacy. A 10% rise in existing EU ETS: emissions allowances are the earth in an hour contains enough energy to
energy costs was credited with precipitating a allocated in advance, on the assumption that run the global economy for a year. But, while
ten cent fall in FedEx’s share price, but a rise economies will grow.) Major projects such as solar, wind, wave, tidal and geothermal energy
of three cents for UPS. It turns out that fuel- the London Array offshore wind farm are in can all be harnessed to generate clean electrici-
per-package-delivered is a key performance the balance, while plans by the legendary oil- ty, they cannot hope to solve the oil crunch –
indicator for UPS, for which managers are man T Boone Pickens to build the world’s and with it many of the environmental conse-
held accountable. largest wind farms in Texas have already been quences of our crude oil addiction, not least cli-
So, in addition to carbon reduction, cost put on hold. Paradoxically, one of the indirect mate change – as long as the global economy
cutting, and resilience to short-term supply impacts of falling oil consumption is that runs on liquid hydrocarbon fuels.
disruption such as the UK fuel duty protests investments in green energy technologies are There is scant evidence that governments
of 2000 (which are likely to become more fre- less economically viable. have awoken to the scale of the peak oil crisis,
quent as the oil supply tightens) there is now If we are still in the foothills of peak oil, the impacts of which will surely be felt well
yet another reason for companies to eliminate there is good evidence to suggest we will before the worst effects of climate change
their dependence on oil. reach the summit well within most compa- start to kick in.
When the next spike occurs depends cru- nies’ planning horizons. We are clearly Oil market psychology lurches between
cially on the depth of the recession – or already in deeply unsustainable territory: two extremes: complacency and panic. What
depression – although analysts such as discovery of oil has been falling for more than we need is to find the middle ground: a sense
Barclays Capital forecasts that in the fourth 40 years, while consumption has risen inex- of urgency and an appetite for action com-
quarter of this year the oil price will average orably, save for a couple of brief recessionary mensurate with the challenge, and to sustain it
$87 per barrel, 12 months later rising to $96. interludes. Today, for every barrel of oil even when oil prices are low.
But, for as long as the oil price stays low, it’s we discover, we consume three; annual The trick for corporate leaders will be to
not just bad for the future oil supply, but production is already falling in more than 60 figure out what the post-petroleum economy
also for investment in renewable electricity of the world’s 98 oil-producing nations. is going to look like, what technologies and
generation, where the economics are judged Many oil companies and forecasters expect policy frameworks will be required to expe-
against the cost of electricity from gas-fired trouble at least by the middle of the next dite the transition, and what risks and oppor-
power stations. The impact is worsened by decade – whether or not they strictly accept tunities will emerge within the changing
the low price of allowances in the EU the term “peak oil”. regulatory environment.
Emissions Trading Scheme (ETS), now lan- Shell expects global production to plateau, In short, they will need to plan how to
guishing at around E10 per tonne of CO
2
, Total’s chief executive, Christophe de survive – or better still, profit from – the
where most energy analysts believe it is impo- Margerie, says the world will never produce inevitable transformation.
tent as a stimulus for green energy invest- more than 89 million barrels a day, and the
IEA says we face a “supply crunch”. David Strahan is the author of The Last Oil
Given the prominence of the peak oil
‘
For as long as the oil price stays
Shock: A Survival Guide to the Imminent
debate, no CEO can claim they were not put Extinction of Petroleum Man and will be
low, it’s bad news for renewable
on notice about this fundamental threat to speaking at Sustainable Business – The Event
electricity generation, where the their business, irrespective of their role at the NEC, Birmingham on Tuesday 19 May.
economics are judged against the
within the economy. It is hard to imagine any Gary Kendall is the director of climate change
sector prospering today in the absence of a programmes at SustainAbility, and author of
’
cost from gas-fired power stations functioning transportation system. Plugged In: The End of the Oil Age.
24 May 2009 ❘ Sustainable Business
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