The Big Realisation: Part 3

A few facts and a few questions

My research into peak oil has thrown up some other facts and questions that felt quite alarming to me. Here are five that really made me sit up and take notice.

1. The link between discovery and production

The peak for discovery of new oil tends to happen 30 years ahead of the peak for production. For example, in the US, the discovery of new oil peaked in the 1930’s. Production in the US then peaked in the 1970’s at 11.3 mb/day. Today, US domestic production is at 6 mb/day and falling.

On the global level, worldwide discoveries peaked in the 1960’s with Alaska and the North Sea. Although small discoveries of oil are still being made each year, none of them have the capacity to keep pace with world oil demand which is estimated to go from 80 mb/day today to 120 mb/day by 2025. Production must eventually mirror discovery. This puts the Peak Oil point at anywhere between 2006-2016. Worldwide production has managed to keep pace with demand because of large reserves. As these reserves diminish, production will fall with no ability to “open the tap wider”.

Peak Oil is the moment when world demand exceeds supply. Without new discoveries of large sources of oil, the demand for oil will eventually outstrip supply. If there is no ability to access surplus supply in the system, the cost will increase with no mechanism to control it other than changing the demand.

2. The US influence

We all know that the US is the biggest user of world resources. In oil terms, the US consumes almost 25% of global oil demand; about 20 million barrels a day of a total 80 million barrels a day used. 5 million barrels a day come from Middle East oil producing sources (OPEC). If the US wanted to eliminate the need for those 5 million barrels a day, the US government could legislate an increase in fuel efficiency of all cars produced in America by only 2.7 mpg. But instead, the US government subsidises the growth of the SUV market in America from a 2% market share of all automobiles sold in the US in 1975 to 24% in 2003. Meanwhile, fuel efficiency averages were allowed to fall in the period from 1987 to 2001 from an average of 26.2 mpg to 24.4 mpg.

The facts suggest that the USA (and other industrialised nations) are taking active steps to accelerate our inevitable trajectory toward a world without cheap oil. Meanwhile, burning oil at present rates is proven to cause other environmental and economic turmoil.

3. The growth imperative

Our economy, and the currency values within it, is debt-based and is predicated on it’s ability to grow. Most money in the system is loaned into existence by banks and is thus based on a debt implying a commitment to pay the interest on the loan. Without growth, new money will not be created to pay the interest on the existing loans. It is impossible to achieve a static or controllably contracting economy with a debt-based currency. Slowing down is not an option.

This simple economic fact places us in a difficult position with regard to both peak oil and climate change. Both of these challenges encourage us to cut back and do less. But our economic system is set up to encourage growth and consumption. We are locked in a system that means that we need to keep the engine running faster- at all costs.

4. “They” won’t let this happen – “something” will save the day

The future of energy is most likely going to be a patchwork landscape made up of a variety of sources and supplies. Renewables such as solar, hydro, tidal, wind, geothermal, etc will all play a part. Other technologies (biomass, hydrogen, etc) will also play a role. And the difficulty of the situation will force many people to rethink their position on energy sources from things that have obvious negative consequences such as nuclear and coal. But nothing will replace oil in terms of its ease of use and flexibility.

The problem is that after years of running at full speed toward eventual oil depletion, and possible environmental disaster, there is potentially very little time to develop and implement these alternatives on a scale that is required to satisfy current demand for power. Additionally, many of the alternatives are great at doing things like producing electricity on a large scale, but less good at powering things like cars and planes. If we are relying on alternatives and other new ideas to save us from real hardship, as many of my friends confidently insist, there is very little evidence that things are on the right track.

Oil depletion and climate change are global problems that will require global solutions. However, corporations, and the leaders within them, have evolved in a system of competition where the aim is to be, ideally, the one and only choice of consumers. Oil was that sort of resource. But to see alternative energy sources as competing against each other for market supremacy misses the point. And since there can be no single winner in the energy provision of the future, investment is slow in coming, and no immediate solutions will be available when the shock wave of peak oil hits.

5. The insurance disaster waiting to happen

Losses from natural disasters has been increasing at a rate of about 10% per year for nearly 40 years. Forget about how you feel about loss of species or the destruction of coral reefs, the insurance industry is based on a system that, in the face of the potential disasters caused by global warming, could collapse under some, entirely imaginable, circumstances.

The insurance industry relies on the collection of claims data from the past to underwrite the present for the risks of the future. This works fine if the basic premise of the system never changes. But in a world where the frequency and severity of natural catastrophes are on the rise, there is an increase in the possibility for unmanageable claims to be placed on the industry. Premiums in the insurance industry represent 10% of the global economy. The insurance industry could be devastated by one or two major weather events in large cities, which would have a domino effect across the finance industry bringing other investments vehicles and hedge funds down with it.

A large proportion of our future finances (pensions, investments) are tied up in the insurance industry. Leaders in the industry are starting to state openly that the industry is at risk because of disasters caused by the effects of global warming which could easily exceed the money that is held in reserve to cover catastrophic losses.

If the situation is anywhere near as dire as many industry experts suggest, the big question is: What are businesses and governments doing about it? Let’s assume that everyone in business is fully aware of the ecological and economic risks associated with the collision between global warming and oil depletion. Why don’t we hear more about this issue? How are organisations preparing for the future?

Many of the people writing on this subject talk about Peak Oil and the change from a supply that exceeds demand to a supply that is out-stripped by demand. But this is not the peak we should be worried about. We should be more worried about the confidence peak. We should be very anxious about moment that oil traders and analysts in the financial industry flip from thinking that we live in a world of growing supplies of oil to a world of shrinking ones. This is the moment – The Big Realisation – that we need to be in fear of because this is the moment that prices will spike and panic buying will ensue. This will most likely be followed by a period of volatile price fluctuations as decreases in demand bring the price down again, but the damage to the economy will be lasing and difficult to overcome in the short term.

When will this realisation happen? No one can say for sure, but evidence suggests that the confidence in the markets in the stability of the price of oil is held there artificially by a combination misinformation and short-term thinking.

The shift from an oil-based way of life to a post-oil world will be potentially massive for people – unless people start to prepare now. Governments and organisations need to see this challenge as a vast change management programme that will take decades to rollout. People inside organisations need to start to be encouraged to imagine what a post-oil company will look like.

• What capabilities will organisations need to have in the future if the effects of Peak Oil become more severe?
• Is the corporate response to Peak Oil something that is best addressed from the top-down or bottom-up? Or both?
• What can organisations do today to start to prepare attitudes, capabilities, and structures?
• What does a post-oil business look like? How do they stay competitive?
• What is the CBI, DTI, IoD doing to prepare businesses for this change?
• What are the conditions for success?
• What is the appropriate action to take at this stage? What are the conditions for escalation to another phase of response? What does the response escalation path look like?
• How do international businesses that are headquartered in London pull together to align approaches and responses to Peak Oil?

The Big Realisation: Part 2

Sticking our head in the (Middle Eastern) sand

Oil is at the heart of nearly every single product and service in our lives. 90% of all transport, 95% or all goods in shops, and 95% of all food produced requires oil either directly as a raw material or indirectly as fuel to run machinery. Nearly every aspect of our current lives depends on oil. And the relative stability of our current economy depends of oil to be plentiful and therefore, cheap. If the cost of oil goes up, the cost of nearly everything else goes up. Oil is at the very heart of the global economy and if the price of oil shoots up because of limited supply then recession is not far behind. This has certainly been the case in the past when we have seen oil prices spike in the 70’s and 80’s creating economic chaos for millions. The difference this time is that instead of a perceived shortage of oil caused by the political chicanery of OPEC, it is a geological reality.

The effects of this are seismic. If the resource that is at the heart of every aspect of our lives cannot be produced at a rate that can keep pace with increasing global demand, then economic chaos is a logical consequence. And the real irony is that our ability to shift to alternative sources of energy production requires oil to make it happen. A lot of oil is needed to make wind turbines. As the cost of a barrel of oil goes up, our ability to afford the expensive transition to other sources of energy becomes more challenging. Perhaps it is best summed up by an article in The Times that starts with the statement, “Oil ruled the 20^th century; the shortage of oil will rule the 21^st.

But surely this is overstating things. So I did some informal research starting with a hand-selected target group – my friends. I asked what people knew about this subject of Peak Oil and whether they were concerned about it or not. Most people were aware of the story as a fringe issue that sometimes appeared as a small segment on the TV news or in the business section of newspapers or news websites. And nearly all the participants in my sample were quick to state that they were sure that alternative energy sources would be brought into use very quickly to replace our oil-addicted lifestyle replacing it with some other technology or energy source, or something. No one imagined for a second that we would need to change our behaviours beyond what was already imagined to address global warming and climate change. But also, no one had any idea who would be driving this change to a new, oil-free way of life, nor was there any idea what the magic solution might be. Everyone was pretty sure it was going to be OK because, at the very least, the US government wouldn’t allow the situation to descend into economic chaos.

Although I like my friends a lot, this didn’t make me feel very reassured.

I carried on with other research into the issue to see what was being said about it. There are obviously strong opinions coming at this from a multitude of perspectives, but there are two basic camps: the people who think we have more than 20 years left before we hit peak oil production, and those who feel that peak oil is imminent or has already happened. The interesting thing is that there is no real dispute about if the oil is running out, the debate is how soon.

Part 3: A few facts and a few questions

The Big Realisation: Part 1

The "Choice" Economy

Global warming has finally made it to mainstream consciousness. The public at large (myself included) have finally started to realise, and accept, what many of the top people in the scientific community have known for decades – our fossil fuel dependent way of life is a direct cause of instability in the global ecosystem creating the potential for devastating consequences. Perhaps it was the sheer number of people in the scientific and environmental community who were speaking out with one voice that turned the tide of public opinion on this subject. Or maybe it was Al Gore and his climate change road show with images of melting polar ice and illuminating charts and graphs that managed to touch our collective nerve. Or perhaps it was the freaky behaviour of the one thing that really matters most to people in the UK – the weather. Whatever the reason, the environment is near the top of the list of public concerns and is now a subject that can be introduced into most conversations without fear of inviting looks of bewilderment or topic-changing tactics from your friends.


Part of the reason that it has taken so long for most people to really start to appreciate the issues and potential impacts of climate change is because, so far, for most of us, focusing attention on the environment has been seen largely as a choice. As inhabitants of highly sophisticated industrialised societies we are accustomed to seeing the world as a series of choices. We are consumers, and through experience have refined our ability to decipher, compare, and select the best ideas from the vast array competing for our attention. Seeing the world in terms of choices is a skill that helps us navigate and make sense of the welter of messages that are vying for a share of our limited attention bandwidth. It is as much a coping mechanism as it is a positive attribute. We instinctively give privilege to the concepts that we find compelling or pleasurable. The rest we consign to the margins.


Like a brand or product that is seeking to attract customers, the environmental movement has had to compete for attention and support with a message that, in comparison to other ideas on the market, is not very pleasant. I have been slow to get fully onboard with this issue because I have been one of these choosy consumers. Of course I have understood the logic of the argument that links environmental change with our carbon-consuming way of life. But could I be bothered to change? Hardly. Somehow, deep inside, I guess I figured that over time, we would all need to slowly make small adjustments in our behaviours which would have a slow, but positive effect on the environmental problems that the scientists have been talking about all these years. Even with the warmer summers, wetter winters, and stories of floods, hurricanes, and other weird weather, the real problem has always felt somewhat removed from my daily, climate-controlled, indoor existence as I travel between home, office, airport, and hotel.


I suppose that having two small children has caused my sense of perspective about the future to stretch out a lot further than it ever used to. Instead of living my life in 3-5 year segments based on job cycles or the average length of a business case, my horizons now look out 18-20 years as I think about the world my two kids will inherit. The economic consequences of the fact that we will be moving from a world dominated by growing amounts of cheap oil to a world dominated by shrinking amounts of expensive oil are immediately obvious, and, unless we are able to make significant changes in the way we live or in how we produce the energy to run our lives, the future will be a lot more challenging than it is today.


Part 2: Sticking our Head in (Middle Eastern) Sand