Some of you may have noticed that Richard Branson was part of an industry task force that recently released a report on the dangers of ‘Peak Oil’ – something that will make the financial crisis the equivalent of a ‘little local difficulty’. Personally speaking I’m glad that the message is finally breaking through to the powers that be. Readers with a long memory might remember that I wrote about this in the Courier back in December of 2005!

Consider the supply of oil from the UK fields in the North Sea:

(Production had a dip in the mid-1980s for two reasons: the collapse in the oil price and the Piper Alpha disaster.)

UK production of oil began in 1975, hit a maximum rate of flow (the ‘peak’) in 1999 and has been declining ever since. Since 2006 the UK has been a net importer of oil – we had gone from being a major exporter to an importer in seven years (this is very significant, and I’ll come back to this issue in a later article) – and as a consequence our balance-of-payments as a nation has been crippled, yet one more example of the financial black hole that our country is presently in.

The real trouble is that this issue of an oil-field beginning production, increasing to a peak, and then inexorably declining with malign consequences, isn’t something that only applies to the UK. The US went through the same situation in 1970. For them, it meant losing control of the oil market, ceding that control to OPEC, and living through the consequent energy crises of the 1970’s. In fact, of some 65 nations who produce oil, around 54 have now passed their peak. The real question then is: at what point will oil supply for the world peak? Sadly, the answer to that is ’round about now’ – the world is now in roughly the place that the UK was in in the late 1990s. There is more oil being produced than ever before, and if we simply use the past as a guide to the future, then all seems rosy. Sadly, nature doesn’t allow oil to be extracted forever. There is a limited amount, and we are facing a future with much less available.

What does it actually mean on the ground? Well, to explain Peak Oil to people that have never heard of it before I like to develop an analogy. Let’s say that a new pub opens on Mersea, and this pub has a wonderful new beer selling for £1 a pint. They haven’t done any publicity, so on the opening night, only one person comes along. Of course, he thinks this is marvellous, and so the next night he brings a friend. The next night, they both bring friends; the night after, they all bring friends. The pub is a success! Demand for this wonderful beer is increasing. However, success brings its own problems. There comes a point when the demand for pints is greater than the publican is able to supply. At that point there are realistically only three possibilities:

1. the publican puts the price up, which helps to reduce demand to a manageable level;
2. the publican sets up a rationing system – you can all have two pints each; or
3. the customers start fighting to get to the bar.

This is the situation that we face. We have seen 1) in the price of oil going up to almost $150 a barrel in 2008 – not an insignificant factor in our present recession. We have also seen 3) in the occupation of Iraq and various other realpolitik manoeuvrings by China in particular. In reality, especially after the fuel-tax protests of 2000, the government has already put plans in place with regard to 2) which we are likely to hear much more about over the next decade.

What Peak Oil means is that the supply of oil will first become expensive, and then become scarce. This will have a major impact upon most facets of our lives. Take a moment to think about what you have done today, and then think about how oil has enabled certain things to happen. From the clothes that we wear, to the toothpaste we clean our teeth with, to the food on our breakfast table, to the transport we so often take for granted, oil is the necessary underpinning for our contemporary society. All of this is at risk. The transport sector is the most vulnerable, but the ripples from the peaking of the oil supply extend much more widely.

The US government commissioned a report on Peak Oil which was published in 2005. The exact date of the peak is a matter of controversy – not least because it would have a major impact on the share prices of oil companies, and others – so the researchers were not asked to talk about when Peak Oil would happen, only what the implications were. The report said this: “The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and long-lasting. Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and discontinuous.”

So: what is to be done? More on that in the next issue.