The peak of oil?

seemed more imperial than democratic. George Bush had spoken piously of America’s dream of bringing democracy to Iraq and other despotic Arab lands. Not surprisingly, democracy from the barrel of an Abrams tank was not the dream of most Iraqis.

Michael Meacher, a former Blair cabinet minister, who had resigned in June, just after the war, told the London Guardian, ‘Bush’s cabinet intended to take military control of the Gulf region whether or not Saddam Hussein was in power.’ Meacher went on to make a shocking charge: ‘[I]t seems that the war on terror is being used largely as a bogus cover for achieving wider U.S. strategic geopolitical objectives.’ Meacher also referred to the Cheney PNAC plan and the Baker Institute energy reports as providing the evident blueprint for Washington policy. The allegations of weapons of mass destruction and Al Qaida links were, for Meacher, just a smokescreen.

He saw a different possible explanation. The real issue, he argued, was, ‘that the U.S. and UK are beginning to run out of secure hydrocarbon energy supplies … The UK could be facing severe gas shortages by 2005.’ The former cabinet minister pointed out that Britain, especially British oil majors BP and Shell, were keen not to be left out of the grab for the remaining world oil. Meacher recalled that ‘Lord Browne, chief executive of BP, warned Washington not to carve up Iraq for its own companies in the aftermath of war.’ Meacher had been UK environment minister and presumably knew of an unusual memo submitted to Blair’s Cabinet Offi ce just days before September 11.4

THE PEAK OF OIL?

On September 9, 2001, the Cabinet Offi ce of Prime Minister Blair had received a highly alarming memo with a simple title, ‘Submission to the Cabinet Offi ce on Energy Policy.’ It had been prepared by the Oil Depletion Analysis Centre, a group of leading geologists.

The UK Cabinet Offi ce memo was to the point: ‘The world faces severe hydrocarbon supply diffi culties.’ It stated, ‘Global oil supply is currently at political risk … Large investments in Middle East production, if they occur, could raise output, but only to a limited extent. The main exception is Iraq …’ The Cabinet Offi ce memo went on to forecast that ‘global output of conventional oil will soon decline. The date of the peak depends on the size of Middle East reserves … Best estimates put the global peak between fi ve and ten years away.’ The report predicted a global peak for natural gas too,

perhaps 20 years away. The authors suggested that the government do the ‘relatively straightforward work of checking these calculations.’ But the memo was quietly buried.

Blair had well-informed oil advisers. They included BP’s chairman, Lord Browne, who was also a close friend of the prime minister. In 1999, more than two years before the UK memo and a year before Bush’s election, Mike Bowlin, chairman of the ARCO oil company, part of Lord Browne’s BP, stated, ‘We’ve embarked on the beginning of the last days of the age of oil.’

What Bowlin meant would have been quite clear to George W. Bush, James Baker and Dick Cheney. Curiously, such a profound issue, affecting economic stability and security, never once entered the public debate, during or after the 2000 elections campaign.

Many times during the past century, from the 1920s on, the world had been told that oil was near an end, and every time the doomsayers were proved wrong. Chicken Little was always shouting that the sky was about to fall. Why should the new warning be any more real than those of the 1970s?

The short answer is because, this time, there was much evidence to support the case. At the very least, the stakes were great enough to warrant a serious public debate. Curiously, unlike the earlier oil scares, this one generated no open discussion. That was most alarming.

The geologists did not predict that the world would run out of oil in fi ve or ten years. They argued something else, namely, that the present availability of easy, cheap oil would decline dramatically, at a time when global demand, especially from China and other economically emerging regions such as India and Indonesia, would be exploding. They also argued that obvious alternatives, including heavy oil, coal or nuclear energy, would not be able to replace oil. The economic implications of their analysis were staggering. For almost a century, the world economy had been built on cheap, abundant oil.

Very serious independent geologists were behind the claims that world oil was nearing a decisive turning point, a peak as it was technically called. The chief fi gure at the UK Oil Depletion Analysis Centre, which had prepared the Cabinet Offi ce report of September 9, 2001, was a well-respected geologist, Colin J. Campbell. His estimates were supported by some of the world’s leading geologists, from such organizations as the Colorado School of Mines, Princeton University Geology Department, the French Petroleum Institute (IFP), Uppsala University, as well as private energy consultants, such as DouglasWestwood Ltd. and Petroconsultants in Switzerland.

These prominent geologists argued quite simply that increasing global oil demands, in order to sustain even modest global population and economic growth over the coming decade or more, would coincide with the dramatic decline in oil production from many of the largest fi elds, such as the North Sea, Alaska’s Prudhoe Bay and others in Mexico, Russia and Nigeria.

In a May 2003 conference on the subject of peak oil, Matthew Simmons, an American energy expert and adviser to both Cheney and George Bush, gave alarming testimony. Simmons had been a leading member of the Baker Institute energy group and one of the main authors of the report to Cheney. He was no minor fi gure, but an insider in the Bush administration energy discussions. Simmons told the international group of geologists and energy specialists at the French Petroleum Institute, ‘Five years ago I barely had thought about the question of, “What does peaking mean and when might it occur?”’ He then stated, ‘The worry is that peaking is at hand, not years away … If I am right, the unforeseen consequences are devastating … unfortunately the world has no Plan B if I’m right.’

Simmons went on to describe the implications for the world economy, in terms of transport, food and industry, of a sudden shortage of basic energy at the current low cost. He stated, ‘There aren’t any good energy solutions for bridges, to buy some time, from oil and gas to the alternatives. The only alternative right now is to shrink our economies.’ In so many words, he predicted that the only prospect was for the world to go into deep recession or depression.

In a July 2002 study on the subject of remaining oil reserves, Colin Campbell stated, ‘The watershed for oil comes around 2010, followed fi ve years later by the peak of oil and natural gas combined.’ He pointed out that oil supplied 40 per cent of all world energy needs and 90 per cent of transportation fuel. ‘It is evident the world will have to learn to use less, much less,’ Campbell concluded.

The geologists defi ned oil peaking as the point where at least half a given fi eld’s oil has been extracted. After the peak, each additional barrel requires ever more input in terms of pressure to maintain oil extraction. Injecting gas or water into old fi elds is costly. That implies that as the world’s major fi elds pass their peak, oil costs are likely to explode. This time, the peak predicted was not of one oil fi eld or even one producing country. It was an absolute peak, a worldwide peak in oil.

Campbell predicted, ‘Beyond 2005, the energy required to fi nd and extract a barrel of oil will exceed the energy contained in the barrel.’

He added that over the past 20 years, despite more than $1 trillion spent trying to fi nd new untapped oil fi elds to replace the aging North Sea, Alaska and other fi elds, oil companies had not been able even to keep up with current consumption. Campbell estimated that for every new barrel discovered, four were being used, an alarming trend.

In another study on the peak oil problem, Matthew Simmons pointed to alarming statistics confi rming the dismal rate of new oil discoveries. ‘The top 10 public exploration and production companies spent $195 billion between 2000–2002, to grow production from 22.4 to 24.1 million barrels oil equivalent a day.’ Acquisitions of existing oil and gas properties were responsible for 93 per cent of that. Simmons went on to predict that rates of decline of existing oil and gas supply would ‘consume all of the current base within 10–15 years,’ that is, by 2010 or 2015.

Once a major oilfi eld had peaked, it was only a matter of time before the production declined dramatically, precipitously. Campbell cited examples in the North Sea of older fi elds, such as Brent, which had lost 90 per cent of its output in the space of four or fi ve years after peaking. That might also explain why the world was unaware of the looming crisis. Many of the major oil sources of the past 30 or so years were at or near peak, while statistics for total reserves gave the illusion of plenty. The major companies and governments all had a vested interest in downplaying the staggering implications of the problem. The Bush administration had more than a passing interest in the question of peak oil. The future of the American century, of Pax Americana itself, was on the line.

In effect, Campbell and other independent geologists confi rmed Cheney’s 1999 London estimate. Campbell had concluded that the only region of the world which still had signifi cant undeveloped oil, at low cost, was the Middle East.

Campbell and Simmons both pointed to a unique geological formation, a triangle which holds perhaps 65 per cent or more of the world’s remaining oil reserves. It encompasses fi ve countries: Iraq, Iran, Saudi Arabia, Kuwait and the Emirates, notably, Qatar. The largest of those undeveloped Middle East oil reserves were reportedly in Iraq. Some U.S. government studies estimated that Iraq might hold as much as 432 billion barrels of unexplored oil resources, far more than Saudi Arabia. The strategic importance of Iraq and the entire Middle East, in a world where other sources of oil had peaked, was preprogrammed to grow exponentially over the next few years. And that oil was still controlled by Arab governments.

The president of ExxonMobil Exploration Company, Jon Thompson, writing in a company magazine in early 2003, indirectly confi rmed the basic analysis of the geologists who predicted a global oil crisis by between 2010 and 2015. Thompson was careful not to speak directly of peak oil problems. Yet his message was clear enough.

Thompson wrote:

We estimate world oil and gas production from existing fi elds is declining at an average rate of 4–6 per cent a year. To meet projected demand in 2015, the industry will have to add about 100 million oil-equivalent barrels a day of new production. That’s equal to about 80 per cent of today’s production level. In other words, we will need to fi nd, develop and produce a volume of new oil and gas that is equal to eight out of every 10 barrels being produced today. In addition, the cost associated with providing this additional oil and gas is expected to be considerably more than what industry is now spending.

Those remarks of one responsible for new oil and gas fi nds for the world’s largest energy company were a bombshell. He stated in effect that the world faced a dramatic need for new oil and gas in the coming decade, beyond anything found to date. And the cost of securing new energy would be ‘considerably more.’ Thompson titled his piece, appropriately, ‘A revolutionary transformation.’

If those alarming estimates of an early crisis in the world’s present energy supply are accurate, or even close, the implications for the world economy are orders of magnitude greater than the oil shocks of the 1970s. Kenneth Pollack, a former senior Clinton National Security Council Middle East specialist, who backed the Iraq invasion, put it bluntly: ‘[T]he global economy built over the last 50 years, rests on a foundation of inexpensive, plentiful oil, and if that foundation were removed, the global economy would collapse.’

In short, the looming depletion of a major share of world oil and gas, due to take effect around the end of the fi rst decade of the century, sometime around 2010 or 2015, perhaps even sooner, would explain the drive to unilateral military action in Iraq by the Bush administration, despite the enormous risks. It could also explain much more about U.S. domestic and foreign policy motives under Bush.

If U.S. military control over Iraq and over future Iraq oil fl ows went unchallenged, Washington would hold the trump cards over all potential economic rivals. Before the war, Iraq’s government had