The facts have changed, now we must change too. For the past 10 years an unlikely coalition of geologists, oil drillers, bankers, military strategists and environmentalists has been warning that peak oil — the decline of global supplies — is just around the corner. We had some strong reasons for doing so: Production had slowed, the price had risen sharply and depletion was widespread and appeared to be escalating. The first of the great resource crunches seemed about to strike.
Among environmentalists it was never clear, even to ourselves, whether or not we wanted it to happen. It had the potential both to shock the world into economic transformation, averting future catastrophes and to generate catastrophes of its own, including a shift into even more damaging technologies, such as bio-fuels and petrol made from coal. Even so, peak oil was a powerful lever. Governments, businesses and voters who seemed impervious to the moral case for cutting the use of fossil fuels might, we hoped, respond to the economic case.
Some of us made vague predictions, others were more specific. In all cases we were wrong. In 1975, M.K. Hubbert, a geoscientist working for Shell who had correctly predicted the decline in US oil production, suggested that global supplies could peak in 1995. In 1997 the petroleum geologist Colin Campbell estimated that it would happen before 2010. In 2003 the geophysicist Kenneth Deffeyes said he was “99 percent confident” that peak oil would occur in 2004. In 2004, the Texas tycoon T. Boone Pickens predicted that “never again will we pump more than 82 million barrels” per day of liquid fuels. (Average daily supply in May was 91 million.) In 2005 the investment banker Matthew Simmons maintained that “Saudi Arabia... cannot materially grow its oil production.” (Since then its output has risen from 9 million barrels a day to 10 million, and it has another 1.5 million in spare capacity.)
Peak oil hasn’t happened, and it’s unlikely to happen for a very long time.
A report by the oil executive Leonardo Maugeri, published by Harvard University, provides compelling evidence that a new oil boom has begun. The constraints on oil supply over the past 10 years appear to have had more to do with money than geology. The low prices before 2003 had discouraged investors from developing difficult fields. The high prices of the past few years have changed that.
Maugeri’s analysis of projects in 23 countries suggests that global oil supplies are likely to rise by a net 17 million barrels per day (to 110 million) by 2020. This, he says, is “the largest potential addition to the world’s oil supply capacity since the 1980s.” The investments required to make this boom happen depend on a long-term price of US$70 a barrel — the current cost of Brent crude is US$95. Money is now flooding into new oil: US$1 trillion has been spent in the past two years; a record US$600 billion is lined up for this year.
The country in which production is likely to rise most is Iraq, into which multinational companies are now sinking their money, and their claws. However, the bigger surprise is that the other great boom is likely to happen in the US. Hubbert’s peak, the famous bell-shaped graph depicting the rise and fall of US oil, is set to become Hubbert’s Rollercoaster.
Investment in Iraq will concentrate on unconventional oil, especially shale oil (which, confusingly, is not the same as oil shale). Shale oil is high-quality crude trapped in rocks through which it doesn’t flow naturally.