Lloyd’s 2 Business: oil crunch coming fast

I have copped a lot of flack over the years talking about peak oil and how we need to prepare our economy for big changes. The Hirsch report told us five years ago, not long after this blog started, that we need at least twenty years to prepare for the peak in global crude oil production, or face serious economic, political and security problems around the world.

That report was buried by the Bush administration but managed to leak out anyway. Did we listen? No.

Now one of the world’s biggest insurers is telling business that the two biggest risks they face are peak oil and climate change. It seems Lloyd’s has gone a bit green, or has started reading frogblog. ;-)

The White Paper, put out by Lloyd’s and Chatham House, is called Sustainable Energy Security: Strategic risks and opportunities for business.

Traditional fossil fuel resources face serious supply constraints and an oil supply crunch is likely in the short-to-medium term with profound consequences for the way in which business functions today.

I recommend that everyone reads this document.

Meanwhile, President Obama is telling America to get ready for an oil constrained future. Many are calling this his ‘war on peak oil‘ speech, but he doesn’t mention peak oil directly, and seems to hint that an awful lot more drilling and oil spills will be necessary in the future. Yuk.

When will our Government wake up to the reality? When will we stop borrowing to build new roads to nowhere, rather than maintaining the road network we already have and optimising its shared use with public transport?

Surely our Government’s public denial of the realities of peak oil suffers from a serious credibility gap?

25 thoughts on “Lloyd’s 2 Business: oil crunch coming fast

  1. When will we stop borrowing to build new roads to nowhere,

    Que?

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  2. This report is not saying anything new and I don’t think it says quite what you think it does.

    The IEA and oil companies have been saying for years that investment is needed to meet demand and that deferred investment increases the risk of a supply crunch. That is not an endorsement of peak oil except that it shows that geological resource is only one factor in the puzzle. The report says that there are large uncertainties about supply and production capacity.

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  3. Come on StephenR. We know that any new major roads built today will not return on their investment, given that global oil supplies are about to go into terminal decline in just a couple of years, and that according to the US Department of Energy.

    insider is right that no public agencies explicitely call the comeing oil crunch ‘peak oil’, because that would spook the markets in a very unfriendly way. However, all their charts say as much. The oil party has reached its peak, and the economic hangover is about to begin.

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  4. I just had no idea what you meant by ‘road to nowhere’! Looked like a play on ‘bridge to nowhere’ and all that.

    insider is right that no public agencies explicitely call the comeing oil crunch ‘peak oil’, because that would spook the markets in a very unfriendly way.

    Out of curiosity why do markets need to hear what public agencies have to say? You have charts and you’ve come to this conclusion, so why don’t markets come to the same conclusion?

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  5. PEAK oil happened back in 2005… we aren’t pumping more oil than we did then, the price of the oil we pump is going up and the oil we pump is harder to find and to get at.

    So all the required bits are in place. The spill is clearly a peak oil phenomenon.

    As for the return on investment, there are routes (roads) that are going to be needed as replacements for roads that are GOING to be underwater, which means that routes that are established at higher elevations are going to be important, and the better and earlier established at that point, the better.

    We should in the creation of those routes, pay attention to the possibility of more instances of torrential rain, sufficient to cause slips and erosion that would not be expectable in the current environment. The backbone road and rail is not I think, sufficiently secure.

    The payback for effort NOW (before rains and flooding begin) is a priceless advantage for our children’s children… while the price is likely to be lower now.

    The notion that there will be no “automobiles” and therefore no need for roads is illusion. There were roads before there were internal combustion engines. Routes established by Roman Armies are still in use today.

    respectfully
    BJ

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  6. StephenR “I just had no idea what you meant by ‘road to nowhere’! Looked like a play on ‘bridge to nowhere’ and all that.”

    I think text from a Talking Heads music review somehow got accidentally cut and pasted into his post.

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  7. Well I thought it was obvious what frog was saying but then maybe I’m just brilliant :-)

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  8. BJchips says “The backbone road and rail is not I think, sufficiently secure.

    The payback for effort NOW (before rains and flooding begin)”

    If what you say about rains and flooding is true, should we not be building a transport system based on arks…?

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  9. ‘road to nowhere’

    Could be a typo – it’s almost Erewhon spelt backwards.

    Erewhon is up the Rangitata River in Canterbury. It’s a long narrow gravel road, so could probably do with an upgrade.

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  10. There is almost no-one who disputes peak oil, only the timing. However, you’ll often hear oil apologists mischaracterising it as “running out of oil”, as a way to poo-poo it. Oil companies don’t want investment in alternatives and so try to paint a picture of oil not peaking for decades. Cambridge Energy Research Associates (CERA) is one of the loudest voices trying to gainsay the peak oil voices and they have noticeably altered their stance to try and push a “peak demand” scenario, as a way to be able to not look stupid when oil starts to decline. However, their charts earlier this year were ridiculous, purporting to show year to year oil supply, more than two decades out, like they have a crystal ball or something.

    As BJ points out, conventional crude oil (the only kind with a large energy return and a high consistent flow rate) peaked in 2005 (in terms of yearly production), so now oil companies are struggling to keep that flow rate up with unconventional oil, including types that, arguably, take almost as much energy to produce as is gotten from the oil produced. And yet there is almost no mention of peak oil from governments, only occasional words that skirt round the issue.

    Despite numerous reports from government and independent organisations over the last few years that paint a clear picture of the finite nature and near term decline of fossil fuels, most people think that “someone will think of something” to allow the consumption party to continue.

    Oil is but one finite resource that will likely reach physical limits of extraction within the lifetime of most people alive today. The message of oil is that we simply cannot expect our environment to keep putting off the fateful day when we have to face reality, by providing us with whatever we need to keep the consumption-fest going.

    The road to nowhere is an apt description and I would not even want to consider replacement roads until we have figured out what kind of sustainable society we want. It is wasteful to use up resources on an assumption that exactly the same kinds of roads that we have now will be needed in a future sustainable society. We certainly would want to retain some kind of links between communities, even as rising sea levels drown some existing routes but what levels and kinds of traffic are sustainable? We need to be thinking carefully about every finite resource we consume in future.

    Why don’t more people seem to grasp the enourmity of the predicament we’re in? Because, since birth, they have all had ingrained into them the myth of infinite growth and the supreme power of humans, the pinnacle and target of evolution.

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  11. Stephen, if you look at Transit’s capital ‘investments’ over the last 15 years most of the money has gone into motorways in one urban region, hence Frog’s apt use of the phrase ‘roads to nowhere’.

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  12. frog,

    Question: When did you first learn about the peak oil issue?
    Hirsch: I learned about peak oil after I got out of the oil industry, because there was essentially no talk about it when I was involved.

    The answer of an honest man..yes?

    The more cynically inclined among us would OTOH say typical!

    It’s the white paper you want us look over.. ?

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  13. updating.. (somehow the edit function does not operate for me.. so this addition to above..

     updating..

    Energy infrastructure will become increasingly vulnerable as a result of climate change and operations in harsher environments

    Right on!

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  14. Well peak oilers have cried wolf quite a few times so it’s not surprising people tire of it and tend to ignore it.

    One of the problems is, what is oil? Peak oil people in my view keep redefining what they mean as oil largely as a result of wrong calls in the past. So oil is now defined as easy liquid. But that;s not how the world works – it looks at total resource from all sources because that is what is available for use.

    And, just as peakoilers redefine what they mean, so the resource scale keeps getting redefined as new technologies and new discoveries are made. Eg NZ is possibly very rich in methane hydrates. The scale of that resource makes Maui, which has powered the country for 30-40 years, look like a speck in the ocean, if it can be captured.

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  15. Insider, there has been no redefinition. The easy cheap stuff peaked in 2005, all liquids peaked (currently) in 2008. Some of that all liquids is double counting, since biofuels use almost as much fossil fuel energy to produce as (some say more energy than) the energy in the biofuels.

    The date of peak is irrelevant, unless it is centuries in the future. It isn’t.

    So NZ has some methane hydrates? Even if that resource could be safely extracted, what would be the point? To make NZ rich before collapse of civilisation? When will people start to realise the finite nature of our world? Maybe never. Collapse followed by some growth followed by collapse followed by …

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  16. “Well peak oilers have cried wolf quite a few times so it’s not surprising people tire of it and tend to ignore it.”

    Part of the problem also is that we might see price increases that are not even related to Peak Oil. Peak Oil creates a one-way bet, and the likes of Goldman Sachs would be idiots not to exploit it as an opportunity to make money. The problem of course is that when J. P. Morgan and Goldman Sachs pours their money into oil speculation, you get a very nice bubble in oil prices (like what we saw in 2008) which detracts from the overall message.

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  17. Just because alternative fuel sources exist, eg. methane hydrates, that doesn’t mean it is a good idea to dig them up and burn them. All we would achieve is putting off for a few more decades the fundamental problem which civilisation must eventually face and deal with: our profligate and extravagantly wasteful energy consumption is utterly unsustainable.

    Our lifestyle and our plans for the future are built upon the presumption that energy, in all it’s forms, will be available indefinitely in virtually unlimited quantities. I see no evidence to suggest this will be the case.

    Apart from anything else the oil, coal and gas still underground will have much greater value in a resource depleted future as raw material for manufacturing. Burning it to drive our vehicles seems ridiculous. And as for the CO2 that would produce…….

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  18. Gary Y makes a very relevant point. Our children’s children will not thank us for burning off all the easy fuel resources just so we could drive our cars down a sealed road to the supermarket to buy 2ltr of milk!

    So unfortunately, we, our society, us, need to now engage in the unaccustomed torture of thought and carefully re-design and re-craft our social organisation to include at the core the concepts of resource stewardship & husbandry: using only what is needed, seeking greater efficiency from what we use, and improving our Quality of Life – to ensure an equal or better QoL for our children’s children. This will need to be done with increasing risk to our current infrastructure from rising sea levels and an increasingly chaotic climate…..

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  19. Of course we won’t run out of oil, but it will be too costly for the common man to commute to work in a single car. More important is that we develop the rail system both away from the sea coast and with electric propulsion. This is essential in a mountainous country to enable regeerative braking. Impossible with any other propulsion system. Also if we develop our renewables properly we are one of the wealthiest energy rich countries in the world. Geothermal direct and Hot Rock, Wave, Wind, Tide, direct solar thermal and PV.

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  20. NZ has some really big, easy gains be made in PT, especially in the manner we organise and use buses…

    For example we in Auckland have a similar bus resource to that of Winnipeg in Canada, we also have a busway and rail network, yet they have 3 times the PT usage we do simply because they run an integrated network with a single organising authority… So we should be able to deal with a 3% decline for a little while, we also have some great biodiesel opportunities given our forests but we do need to get cracking on a few urban railways…

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  21. Jeremy, the one Wellington City Council consulted on, then said “oops; there was never enough money” would be good :-)

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