Is There a Plan for Life After Peak Oil?

Now they might start sitting up. They wouldn't listen to the environmentalists or even the geologists. Can governments ignore the capitalists?

A report published last week by Citibank, and so far unremarked by the media, proposes "genuine difficulties" in increasing the production of crude oil, "particularly after 2012." Though 175 big drilling projects will start in the next four years, "the fear remains that most of this supply will be offset by high levels of decline".

The oil industry has scoffed at the notion that oil supplies might peak, but "recent evidence of failed production growth would tend to shift the burden of proof onto the producers", as they have been unable to respond to the massive rise in prices. "Total global liquid hydrocarbon production has essentially flatlined since mid 2005 at just north of 85 million barrels per day."

The issue is complicated, as ever, by the refusal of the OPEC cartel to raise production. What has changed, Citi says, is that the non-OPEC countries can no longer answer the price signal. Does this mean that oil production in these nations has already peaked? If so, what do our governments intend to do?

Nine months ago, I asked the British government to send me its assessments of global oil supply. The results astonished me: there weren't any. Instead it relied exclusively on one external source: a book published by the International Energy Agency. The omission became stranger still when I read this book and discovered that it was a crude polemic, dismissing those who questioned future oil supplies as "doomsayers" without providing robust evidence to support its conclusions. Though the members of OPEC have a powerful interest in exaggerating their reserves in order to boost their quotas, the IEA relied on their own assessments of future supply.

Last week I tried again, and I received the same response: "the Government agrees with IEA analysis that global oil (and gas) reserves are sufficient to sustain economic growth for the foreseeable future." Perhaps it hasn't noticed that the IEA is now backtracking.

The Financial Times says the agency "has admitted that it has been paying insufficient attention to supply bottlenecks as evidence mounts that oil is being discovered more slowly than once expected ... natural decline rates for discovered fields are a closely guarded secret in the oil industry, and the IEA is concerned that the data it currently holds is not accurate."

What if the data turns out to be wrong? What if OPEC's stated reserves are a pack of lies? What contingency plans has the government made? Answer comes there none.

The European Commission, by contrast, does have a plan, and it's a disaster. It recognises that "the oil dependence of the transport sector ... is one of the most serious problems of insecurity in energy supply that the EU faces." Partly in order to diversify fuel supplies, partly to cut greenhouse gas emissions, it has ordered the member states to ensure that by 2020 10 percent of the petroleum our cars burn must be replaced with biofuels. This won't solve peak oil, but it might at least put it into perspective by causing an even bigger problem.

To be fair to the Commission, it has now acknowledged that biofuels are not a green panacea. Its draft directive rules that they shouldn't be produced by destroying primary forests, ancient grasslands or wetlands, as this could cause a net increase in greenhouse gas emissions. Nor should any biodiverse ecosystem be damaged in order to grow them.

It sounds good, but there are three problems. If biofuels can't be produced in virgin habitats, they must be confined to existing agricultural land, which means that every time we fill up the car we snatch food from people's mouths. This, in turn, raises the price of food, which encourages farmers to destroy pristine habitats -- primary forests, ancient grasslands, wetlands and the rest -- in order to grow it. We can congratulate ourselves on remaining morally pure, but the impacts are the same. There is no way out of this: on a finite planet with tight food supplies you either compete with the hungry or clear new land.