Shocking interview with IEA Chief Economist, Peak Oil Production Plateau possible by 2020

December 15 2008 / by Garry Golden / In association with Future
Category: Energy   Year: 2020   Rating: 2

Fatih Birol

In 1972 a team of futurists published the book Limits to Growth which explored long-term forecast models based on rapidly expanding global economic and population growth against finite natural resources. 

While most people assumed that growth could continue unabated, Limits to Growth offered a shocking alternative scenario - overshoot and collapse. Their future? The modern industrial economy would expand beyond the legacy resource capacity of the planet as supplies plateaued and depleted faster than expected.  The 'Overshoot and Collapse' future scenario was mostly ridiculed by mainstraem economists and political leaders.

Now the world's leading oil forecasting agency is hinting that this future is closer than expected with regard to our conventional oil supplies.  They are calling for an 'energy revolution'.

A Video Interview for the Ages
The UK's Guardian's George Monbiot has posted this fantastic, hard edged video interview with the International Energy Agency Chief Economist Dr Fatih Birol. (Link to video)

For those who have followed the 'peak oil' conversation evolve, this is the most shocking admission on record from a leading global oil analyst.  Birol acknowledges that the major differences between the IEA's World Energy Outlook report from 2007 were based on the 'wrong assumptions' of oil field decline rates.   He admits that, until 2008, no organization has ever done a comprehensive global oil field decline rate survey.  

Monbiot's annoynance with the IEA's failure to back their forecasts with actual data is priceless, and scary given the implications of IEA's role in providing governments with accurate oil forecasts. In 2007 the IEA said the decline rate asumption was 3%, now in 2008 they say data support 6-7%.  At that rate, the world's conventional oil production plateau could happen between 2020-2030.

Birol says that the current path is "not (economically) sustainable" and the IEA is now calling for 'an energy revolution'. We think this should certainly start with global leaders pushing to Kill the Combustion Engine and taking away the liquid fuel fed energy device that makes us so dependent on oil.

What to watch:
Peak Oil is about to go Mainstream
The broad implications of peak production in conventional oil resources?

What is peak oil?

Peak Oil by definition occurs when global extraction plateaus and the rate of production enters terminal decline.  Because your economy is running full steam on the resources, you deplete the amounts much faster than it took you on the way 'up'.  [Graph of different forecasts]

Peak Oil does not mean that there is no more oil left in the ground.  It means that production lags behind demand as companies struggle to bring new fields online. 

Peak Oil means that we do not replace our depleted reserves fast enough.

Yes we will find new supplies in Deep Water, but it won't come online fast enough or at the right price.   

Yes, technology will allow us to get more oil out of old fields, but not as quickly as demand grows or at a low cost.

Peak & Plateau Scenario
If oil resources fail to meet supply for liquid fuel markets then energy companies will simply turn to non conventional resources like oil shales, tar sands and coal (to liquids).  The downside is higher costs for liquid fuels and more polllution from this carbon-rich resources.

So the world economy might not 'collapse', but high energy prices could be crippling to economic growth and geopolitical stability. 

This is the scenario of 'Peak and Plateau'.  If we are to believe the IEA, this might be our best case scenario as long as the world's transportation fleet relies on liquid fuels and the combustion engine.

IEA implications of Peak Oil era

1) Oil companies and oil rich countries will likely underinvest in expanding capacity as prices remain low during this economic downturn

2) The future gap in liquid fuel markets will likely be filled with non-conventional resources like shale and tar sands - that are more expensive to produce and have a much higher carbon footprint.

3) Our temporary low prices will surge back to a sustained period of high prices (IEA estimate $100 barrel) as the economic regains momentum - continuing the trend of huge transfer of wealth from oil dependent to oil-rich countries.

4) We will become more reliant on coal and low cost hydrocarbon resources. 

Remember you cannot put electrons from solar wind or nuclear into a combustion engine!!!  This is a liquid fuel challenge.


Link to Video

Book: Limits to Growth

Monbiot Meets Videos

Comment Thread (6 Responses)

  1. How can this be “shocking” if we keep hearing that pick oil was already reached?

    Posted by: johnfrink   December 16, 2008
    Vote for this comment - Recommend

  2. @Johnfrink—Peak oil hasn’t been reached. That is purely propaganda. Does it really matter though? In 10 years we should have some technology to replace a good percentage of our energy demands in the U.S at least.

    Posted by: Covus   December 16, 2008
    Vote for this comment - Recommend

  3. Shocking not b/c you have heard it, but the leading oil economist in the world has never uttered the words.

    So it confirms the plausability of a very unexpected future.

    And we’ll only know in hindsight when it happened. Whether it was in 2005 or will be in 2020—it’s hard to say now.

    And Covus—- That’s definitely a technoptimist view… I’m with you, and not with you.

    It’s easy to say that we’ll just find a solution- but at what price point. And how quickly. The economy driven by low energy vs high energy costs run very differently. (Good and Bad)

    You’re right that the world doesn’t end at peak production, but it changes the dynamics. And I wouldn’t underestimate the transition ahead towards high energy costs. The world has several hundred million vehicles that operate on liquid fuels.

    You cannot wave a techno solution wand over that reality. There will be a transition period between liquid fuels and electron (electricity/hydrogen) for electric motors. What fills that void?

    There are real businesses behind how the world works—- and adoption rates with physical forms of energy don’t always follow digital technology adoption rate paths. No Moore’s law for liquid fuel substitutes.

    So—is the sky falling? No. I do think we’ll move beyond liquid fuels—but I don’t think it will be easy. All eyes are on the transition period.

    I think this is big news b/c of who said it… not an activist of Geoscientist—but the IEA Chief Economist.

    And that they admitted that their agency was basing forecasts on assumptions, not actual data. That’s getting caught with your paints down IMHO.


    Posted by: Garry Golden   December 16, 2008
    Vote for this comment - Recommend

  4. @Gary – Yeah haha, they were really caught with their pants down.

    I know you can’t wave a magic wand because we live in reality and its very complicated( I agree with you 100%) but here’s my thinking: if we can take a sufficient piece of the pie away from oil (I agree we can’t eliminate it completely) it’s going to take longer to get to peak oil and with accelerating technology and this new administration, I am very optimistic. The better technology we get, the longer its going to take before we reach it.

    Of course, we have to do something fast. We can’t have 140-200 a barrel again. It will strangle the US’s economy. Even with advanced technology, we will just hold our head above water.

    Posted by: Covus   December 16, 2008
    Vote for this comment - Recommend

  5. Covus

    Thinking out loud if you don’t mind! Trying to imagine the best cast scenario. No flaming here.. just gentle nudge to challenge some common techno fix assumptions.

    Should start by saying- I do think there is a long term solution to liquid fuel problem..but that transition pain (1-2 decades) is likely.

    Also, I’ve never been a conspiracy theorist- or doomsday person—far from it.

    But I know energy and exponential growth – and that if we take 100 million barrels a day production (we’re at 85 today; would be hard to scale up to 100/day by 2020 at current cost of barrel) and have a decline rate of 6-7% annually..

    We just need to do the math in your head. We know compound growth going up with Moore’s Law… but what about going down? That’s the scary part of peak production…

    The world took 100 years to get to top… but at consumption rates- it’s a much quicker ride down.

    So what slows it down? The ‘plateau’ scenario—- which I think it more likely than ‘collapse’.

    High cost of energy. That’s the market force. First, high costs lead to crazy geopolitical problems and slow growth of emerging economies. So instability alerts on higher alert.

    High cost of energy means- companies turn to low cost resources. That’s coal. People hate coal, right?! What about shale? Or tar sands? Not high on list either!

    It gets hard to imagine what replaces oil gap. A high energy density liquid fuel.

    This is why I push algae and bioenergy. Tap power of molecular engines—to eat carbon, bind with hydrogen and produce liquid fuel.

    Solar and nuclear do nothing because oil is a liquid fuel.

    This is why I say – Kill the combustion engine so electricity/hydrogen can allow renewables and nuclear to compete.

    Again, we’ll find billions of more barrels in reserve in deepwater.. better extraction… but I don’t think people understand Demand. It’s a lot easier to consume, than to produce oil fields. It’s an expensive process that takes years to develop.

    What replaces the energy potential inside hydrocarbon bonds?

    100 million barrels a day. You can’t get that energy from solar or wind. You can’t store it in batteries. It’s just too much energy. We have to develop something new for production and for chemical storage.

    What is it – that’s the big question!

    It took the planet hundreds of billions of year to make that chemical energy reserve. We have the sun, but it’s diffused with low density per sq/unit.

    So for me—it’s a very serious conversation about numbers and rates of change.

    Thanks for commenting—- sure we’ll be looking more closely at it!

    And re: price.

    Definitely listen to the interview again—$100 is the expected price so a 120-200 over next 5 or 15 years is very likely.

    This is why I posted the interview. The Chief Economist of the IEA is saying… Get ready for high prices when the economy grows!

    Cheers- Garry

    Posted by: Garry Golden   December 17, 2008
    Vote for this comment - Recommend

  6. @Gary – Good point. However, there is more oil to exploit in the world—if necessary. We’ll just have to wait and see how things unfold. There is no question that it will be a rough time from here on out.

    Posted by: Covus   December 17, 2008
    Vote for this comment - Recommend