The triple-crunch log this month, updated now on my website, is dominated by events in the Middle East and the price of oil. As I write, Twitter is ablaze with talk of the protests planned by some Saudi citizens next Friday. Saudi troops are already being deployed around the Kingdom. Before there was any sense that contagion might spread even to Saudi Arabia, some analysts were warning of $220 oil ….”only” if Libyan and Algerian oil production was affected. Now one analyst says this of the prospect of Saudi disruption: “this is when you can come up with pretty much any silly number you want.”
UK Secretary of State for Energy Chris Huhne said yesterday that we face the threat of a 1970s-style soil shock. I fear he is wrong. In the two oil shocks of the 1970s, oil flow rates could be lifted after the respective political crises. This time there is real risk that they can’t, for much longer. The peak oil debate is about both “below ground” (geological) and “above ground” (geopolitical) considerations. The many people who fear that global oil production will drop in the near term, perhaps plunge, stress the potential for below- and above-ground factors to act in concert. Over the last few weeks, above-ground factors have started to hit us hard and fast, while fears continue to build that below-ground there isn’t as much readily-recoverable oil left as so many people assume: that reserves and accessible resources are being overstated in the same systemic, cultural, “groupthink”, way that the investment bankers overstated their “assets” in the run up to the credit crunch.
The UK Industry Taskforce on Peak Oil and Energy Security has been appealing to the UK government for co-operative contingency planning and proactive risk-abatement for three years now. We remain desperately keen to work with the UK government. The government is belatedly rushing out a plan to wean the UK off oil this week. Let us see what it says.
We are entering a time of consequences. Even if this phase of crisis abates, the core problem is simply delayed. I normally adopt a somewhat apologetic tone in these short monthly missives, but this month please allow me to be a little more strident. Nobody – whether individual, household, community, city, government or business – can responsibly afford simply to hope for a comfortable outcome on the peak-oil risk-issue any longer. We all need to be drawing up contingency plans, and taking whatever proactive measures we can.
Not all the potential outcomes of this latest human drama are negative. There is upside potential for a road to renaissance beyond, including in Saudi Arabia. But we will be challenged, and we will all need to play our parts in holding society together in the tough times ahead. The more proactive we are, obviously, the softer the landing, and the quicker we can engineer the road to renaissance.
For businesses, there is now no longer any excuse for following “business as usual” five year business plans, given the pervasive direct and indirect role of affordable energy costs in those plans. Your board cannot responsibly assume conventional energy prices are going to be in historical brackets over that period.
For those in the corporate world who feel they want to understand the underlying risk issues a little better, I and Chris Skrebowski, consulting editor of Petroleum Review, will offer a 1.5 hour webinar. If your company’s risk managers would like to take part, just send me an e-mail.
Dr Jeremy Leggett
Founder and Chairman, Solarcentury and SolarAid