How to Avoid Oil Wars, Terrorism, and Economic Collapse
August 30, 2005

by Richard Heinberg		print version
		print version (graphics)

By now most well-informed people are aware that global oil production may soon reach its all-time peak, and that the consequences will likely be severe.

Already many important oil-producing nations (such as the United States, Indonesia, and Iran) and some whole regions (such as the North Sea) are past their production maximums. With nearly every passing year another country reaches a production plateau or begins its terminal decline.

Meanwhile global rates of oil discovery have been falling since the early 1960s, as has been confirmed by ExxonMobil. All of the 100 or so supergiant fields that are collectively responsible for about half of current world production were discovered in the 1940s, '50s, '60s, and '70s. No fields of comparable size have been found since then; instead, exploration during recent years has turned up only much smaller fields that deplete relatively quickly. The result is that today only one new barrel of oil is being discovered for every four that are extracted and used.

World leaders are hampered in their ability to assess the situation by a lack of consistent data. Proven petroleum reserve figures look reassuring: the world has roughly a trillion barrels yet to produce, perhaps more; indeed, official reserves figures have never been higher. However, circumstantial evidence suggests that some of the largest producing nations have inflated their reserves figures for political reasons. Meanwhile oil companies routinely (and legitimately) report reserve growth for fields discovered decades ago. In addition, reserves figures are often muddied by the inclusion of non-conventional petroleum resources, such oil sands - which do need to be taken into account, but in a separate category, as their rates of extraction are limited by factors different from those that constrain the production of conventional crude. As a consequence of all of these practices, oil reserves data tend to give an impression of expansion and plenty, while discovery and depletion data do the opposite.

This apparent conflict in the data invites dispute among experts as to when the global oil peak is likely to occur. Some analysts say that the world is virtually at its peak of production now; others contend that the event can be delayed for two decades or more through enhanced investment in exploration, the adoption of new extraction technologies, and the substitution of non-conventional petroleum sources (oil sands, natural gas condensates, and heavy oil) for conventional crude.

However, there is little or no disagreement that a series of production peaks is now within sight - first, for conventional non-OPEC oil; then for conventional oil globally; and finally for all global conventional and non-conventional petroleum sources combined.

Moreover, even though there may be dispute as to the timing of these events, it is becoming widely acknowledged that the world peak in all combined petroleum sources will have significant global economic consequences. Mitigation efforts will require many years of work and trillions of dollars in investment. Even if optimistic forecasts of the timing of the global production peak turn out to be accurate, the world is facing an historic change that is unprecedented in scope and depth of impact.

Due to systemic dependence on oil for transportation, agriculture, and the production of plastics and chemicals, every sector of every society will be affected.

Efforts will be needed to create alternative sources of energy, to reduce demand for oil through heightened energy efficiency, and to redesign entire systems (including cities) to operate with less petroleum.

These efforts will be challenging enough in the context of a stable economic environment. However, if prices for oil become extremely volatile, mitigation programs could be undermined. While high but stable prices would encourage conservation and investment in alternatives, prices that repeatedly skyrocket and then plummet could devastate entire economies and discourage long-term investment. Actual shortages of oil - of which price shocks would be only a symptom - would be even more devastating. The worst impacts would be suffered by those nations, and those aspects of national economies, that could not obtain oil at any price affordable to them. Supply interruptions would likely occur with greater frequency and for increasing lengths of time as global oil production gradually waned.

Efforts to plan a long-term energy transition would be frustrated, in both importing and exporting countries. Meanwhile the perception among importers that exporting nations were profiteering would foment animosities and an escalating likelihood of international conflict.

In short, the global peak in oil production is likely to lead to economic chaos and extreme geopolitical tensions, raising the spectres of war, revolution, terrorism, and even famine, unless nations adopt some method of cooperatively reducing their reliance on oil.


A Plan for Global Powerdown

The Oil Depletion Protocol provides a way forward (the text appears at the end of this article).

It was drafted by the Association for the Study of Peak Oil; however, the source of the document is of little importance - only its substance is of interest. While it is merely a suggested outline and will require fleshing out and detailed negotiation, the Protocol is inherently simple. As will be clear from the Discussion below, it would be unnecessary for all nations to ratify the Protocol in order for it to have a beneficial effect; if even one nation adopts it, that nation will be benefited. However, if a substantial number of nations sign on this will create a platform for international economic stability and cooperation.

The Protocol will be presented at several important international conferences attended by world leaders in late 2005. Efforts will also be made to publicize and communicate it to the general public. It is hoped that a few courageous politicians in each country will understand its importance and bring it before their governing bodies for consideration and adoption.


How Would It Work?

The idea of the Protocol is inherently straightforward: oil importing nations would agree to reduce their imports by an agreed-upon yearly percentage (the World Oil Depletion Rate), while exporting countries would agree to reduce their rate of exports by their national Depletion Rate.

The concept of the Depletion Rate is perhaps the most challenging technical aspect of the Protocol, yet even it is easy to grasp given a little thought. Clearly, each country has a finite endowment of oil from nature; thus, when the first barrel has been extracted, there is accordingly one less left for the future. What is left for the future consists of two elements: first, how much remains in known oilfields, termed Remaining Reserves; and second, how much remains to be found in the future (termed Yet-to-Find). How much is Yet-to-Find may be reasonably estimated by extrapolating the discovery trend of the past. The Depletion Rate equals the total yet-to-produce divided by the yearly amount currently being extracted.


Let us explore a few examples:

Norway is a country that reports exceptionally accurate reserve estimates. The total produced to-date is 18.5 billion barrels (Gb), and 11.3 Gb remain in known fields, with about 2 left to find, giving a rounded total of 32 Gb. It follows that 13.5 Gb are left to produce. In 2004, 1.07 Gb were extracted, giving a Depletion Rate of 7.4 percent (1.07/13.5). This is a comparatively high rate, typical of an offshore environment.

In the case of the US (considering only the lower 48 states and excluding deepwater), the corresponding numbers are: produced to-date, 173 Gb; Remaining Reserves, 24 Gb; Yet-to-Find, 2 Gb - meaning that there are 27 Gb left. Annual production in 2004 was 1.3 Gb, giving a Depletion Rate of 4.6 percent (1.3/27).

For the world as a whole, 944 Gb have been produced; 772 remain in known fields; and an estimated 134 Gb is Yet-to-Find, meaning that 906 Gb are left. Production of conventional oil in 2004 was 24 Gb, so the Depletion Rate is 2.59 percent (24/906).

These estimates exclude non-conventional oil - oil shales, bitumen (oil sands), extra-heavy oil, heavy oil, deepwater oil, polar oil, and liquids from gasfield plants. Most oil produced to date has been of the conventional variety, which will dominate all supply far into the future, so it makes sense to concentrate on this category.

It must be stressed that current Reserves estimates in the public domain are grossly unreliable, and one of the purposes of the Protocol is to secure better information. The assessed Depletion Rate for each country, and eventually for the World as whole, is subject to revision when better information becomes available, but the resulting correction of the Depletion Rate will not be large, probably causing it to vary by less than one percent.

The Depletion Protocol would require importers to reduce their imports by the World Depletion Rate (i.e., 2.5 percent) each year in order to put demand into balance with world supply. As stated earlier, exporters would reduce their production according to their national Depletion Rate. Thus Norway would reduce its production by 7.4 percent each year (that country's production is already declining at an even higher rate).

The imposition on the producing countries represents no great burden, since few can now increase their rate of production in any case, and many are experiencing declining production for purely geological reasons, as is the case with Norway and the US. Agreeing to produce less oil would not inhibit exploration because new finds would lower the national Depletion Rate, and thus permit a higher rate of export than would otherwise be the case. The main thrust of the Protocol would be to require importers to cut imports, but the inclusion of producers in the provisions would stimulate greater cooperation between the two factions. Any indigenous production in a country that was a net importer would not be likely to provide that country with an unfair advantage, as production within most importing countries is already declining at a rate higher than the World Depletion Rate.

How importers dealt internally with the import restriction would be up to them (though strategies both to obtain supplies of alternative fuels and to reduce demand for oil would doubtless be required). Some might wish to introduce an energy allowance as a form of tradable ration (as will be discussed in more detail below).