Too little oil being found to maintain production

The rate at which oil is being discovered has been falling since 1981 and we now use five barrels for every one being found. Unless the rate of discovery increases greatly, production will have to fall.

Energy Supplies and Ireland’s Future

Almost nothing about Ireland’s future energy supplies is certain except the fact that the world’s supplies of oil, coal and gas began running out on the day that they were first used. There are still huge supplies of coal but oil and gas are getting scarce and the amount of energy that humanity will be able to get from these two key fuels is expected to peak within the next few years and then start to decline.

Exactly when this peak will occur is the subject of heated debate. The International Energy Agency (IEA) believes that oil output can go on increasing for the next 25 years - but only if enough capital is invested in finding and producing it. Others, like Chris Skrebowski, the editor of the Petroleum Review, thinks that the peak will be reached in the next two years. “There are not enough large-scale projects in the development pipeline right now to offset declining production in mature oil fields and to meet global demand growth beyond 2007” he says.

With gas, the situation is even more confused. The production of gas in Europe has already peaked and some say the global peak could come as soon as 2010. Others expect world production to level off around 2015 but think that the decline might not start until 2040.

Whenever it happens, however, there is universal agreement that the combined oil and gas peak will have far-reaching effects on the way we live our lives. Energy use is fundamental to everything we do and the present level of global output is only possible because fossil fuels are available to power our production and distribution systems. As a result, unless major replacement sources of energy are developed in time, a declining supply of oil will mean that economic growth becomes impossible. Indeed, the world economy is likely to shrink. The IEA graph below shows how closely the rate of increase in the world’s output (shown as Real GDP, the blue line) is linked to increases in oil use, the red line.

Economic growth linked to energy use

How high will prices go?

Another area of debate is over the effect that shortages of oil and gas will have on their prices. If the two fuels are getting scarcer, you might think that they will become progressively more expensive. That’s certainly a possibility, but many people think that higher energy prices could push the global economy into a depression. If so, major construction projects would be cancelled, unemployment would soar, energy demand plummet and, as a result, the prices of all fuels would fall too. If this happened, of course, it would mean that the major oil companies never found it profitable to put up the capital required to develop new oil and gas fields. Nor would it be attractive to develop renewable energy sources. In short, no-one knows how important each possible energy source will be in the future and how high - or low - energy prices might be.

With this level of uncertainty, how can anyone reasonably plan for their organisation’s future? Scenario Planning is one answer. It is a technique developed by the Global Business Environment Unit of Shell International and helped the company prepare for the oil price shocks in 1973 and 1979. Many companies have used it since, including British Airways, ICL and United Distillers. It involves the creation of two or more plausible scenarios about the future rather than a single prediction. This is done because

• A prediction is never right - the unexpected always happens and the assumptions, conscious and unconscious, that apply today may not apply tomorrow.
• People either agree or disagree with a single prediction so it is difficult to gain consensus. Because scenario planning is not trying to predict the future, but only find plausible futures, consensus becomes possible.
• Good scenarios challenge people’s thinking and stimulate discussion, helping organisations to create a common language to talk about the future.

Organisations then test their plans against each scenario to see how they would perform. If the results are poor, they can change their strategy to one which performs better under each one.

Feasta, the Foundation for the Economics of Sustainability, has created four plausible scenarios that, taken together, define the area in which the world’s energy future will lie – provided, of course, no major wars, plagues or similar catastrophes happen. This site presents those scenarios and gives visitors the chance to comment on them.

Two of our scenarios, Business as Usual, and Enlightened Transition, assume that oil peak does not occur for 25 years, but in one case we have a good proactive government and in the other case the market is allowed to determine the path along which Ireland develops. In the other two scenarios, we assume that the oil peak takes place next year. In Enforced Localisation, the world’s central banks and governments handle it really badly and bring about a global depression. In Fair Shares, however, tradable energy ration permits are introduced so that the poorest people in the world are still able to afford food and kerosene for their lamps. The increase in their purchasing power as a result of selling their ration permits supports the world economy and provides plenty of work. In rich countries like Ireland, however, the cost of buying the ration permits from the poorer countries reduces people’s purchasing power to a limited extent.

All the scenarios have been explored using ECCO, a computer model of energy and resource flows in the Irish economy. This has enabled us to see how they might work out over the next fifty years.

“Scenario planning can help us understand the uncertainties that lie before us, and what they might mean. It helps us “rehearse” our responses to those possible futures. And it helps us spot them as they begin to unfold.” (Wilkinson, Scenarios: Special Wired Edition, January 1996).

To read a more details about Peak Oil and the Energy Scenarios, go to the Introduction to Energy Scenarios

Or go the the contents page of the Information Section