September 6th and 7th 2006 in Brussels
By C.J.Campbell ASPO IRELAND

A workshop was convened under the auspices of DG Energy Strategy and Policy, being attended by some fifty delegates representing various disciplines, factions and interests. The following is a summary of the meeting :

1. A Sensitive Subject

Probably the most remarkable and constructive element of the Workshop was that it should be held at all, because any notion of resource constraint runs counter to the general assumptions behind past policy. By far the most important conclusion of the Workshop was the unequivocal recognition that oil and gas were formed in the geological past, being therefore subject to depletion. Accordingly, it is evident that both discovery and corresponding production start and end, passing a peak in between. Such a perception, relating to the World's premier fuel supplies, indeed confounds the classical economic principles that supply must meet demand in an open market and that one resource seamlessly replaces another as the need arises.

It was noted in particular that the reports of the International Energy Agency were based on the assessment of demand under alternative economic and political scenarios, effectively assuming that the resource itself was infinite for practical purposes. Confining the forecast to relatively short-term periods of ten to twenty year makes it possible to ignore the impact of depletion, such that the rising production of the scenario would be subject to an implausible collapse immediately after the forecast to respect the resource constraints.

2. Unreliable Data

A second important conclusion was that public data on oil and gas reserves, and to a lesser extent production, were grossly unreliable. It was in particular noted that the terms Conventional and Non-Conventional were used in widely different senses. There is accordingly an urgent need to define the different categories of oil and gas properly, given that each has its own costs, characteristics and depletion profile. Reserves are reported in financial, commercial and political terms, which may be entirely valid within their contexts, but fail to provide a valid indication of the actual resource situation. Valid data were previously available in industry databases based on co-operation by the major oil companies, but these sources themselves deteriorate under new commercial pressures. The unreliable nature of the data has allowed vested interests to exploit the uncertainty for their own purposes. For example, if the International Energy Agency sees itself primarily as a Consumers? Lobby, it would have every legitimate motive to downplay the resource limits of Nature that empower the Producers.

3. Security of Supply for Europe

The Workshop accepted that soaring oil prices reflect global capacity limits, imposed primarily by resource constraints, although also affected by economic, commercial and political factors. If follows that the low price epoch of the past half-century is over, although volatile prices may develop as relatively small shortages or surpluses have disproportionate impacts on market prices, themselves subject to speculative pressures. Indigenous oil and gas production in Europe is set to decline steeply meaning that the resources will be virtually exhausted during the first half of the present Century. It follows that the region becomes increasingly dependent on imports, the supply of gas being particularly vulnerable insofar as has to be delivered by pipeline from distant sources in Siberia, North Africa, the Caspian and Middle East, giving the transit countries a particular control.

It may be noted in passing that gas, being a gas not a liquid, depletes very differently from oil, such that a long plateau of production, which is primarily controlled by the installed infra-structure, tends to end in a cliff. Production costs generally decline over the duration of the plateau being commonly accompanied by falling sales prices, so market signals generally fail to warn of an impending terminal cliff. Stranded gas in remote locations is now being liquefied, providing greater flexibility to the market, but in volume terms is unlikely to be significant over the longer term.

Hopes were expressed at the Workshop that the Arctic provinces, including those of Norway, on which the EU is in negotiation, could provide substantial new resources of oil and gas. While further exploration can indeed be justified, it would be extremely unwise to assume a positive outcome. In addition to the extreme operating conditions, the Arctic province suffers from two serious geological constraints. First, prolific oil source rocks, which were deposited in tropical areas, have only locally been transported to high latitudes by plate tectonic movements. Second, the petroleum systems of the Arctic have been adversely affected by vertical crustal movements of as much as 2000m under the weight of fluctuating ice caps in the geological past. The region is accordingly gas-prone, and defective seal integrity has led to re-migration and dissipation, such that initial indications of promise are often followed by disappointment.

4. The Impact of Technology on Oil Recovery

The issue of increasing the percentage recovery of oil was discussed at length. Advocates from vested interests, possibly with an eye on EU funding, made exaggerated claims. The reality is that the prime impact of enhanced recovery is on difficult reservoirs (such as the Chalk of Norway) and heavy oils, and cannot in any case be accurately determined because the oil-in-place on which it is based cannot itself be measured accurately. The prime impact of the remarkable technological achievements of the industry has been to hold production higher for longer, thereby accelerating depletion, without adding significantly to the amounts recoverable. Indeed in some cases, advanced technology, such as horizontal drilling, has actually diminished recovery while improving the profits, which is inevitably the primary objective of the operating companies. Most of the world?s giant fields lie onshore and in relatively shallow waters and may be effectively drained by existing technology. The remarkable recent developments in deepwater engineering help bring in small and difficult fields, which may become profitable but have an insignificant impact on global supply. It is stressed that while the world has plenty of deepwater, very few deepwater areas are endowed with prospective geology.

5. Climate Change and Technology

While there have been many epochs of extreme global warming in the geological past, some indeed being responsible for the proliferation of the organic material that became oil, it is recognised that the emissions causing global warming reached extreme levels during the last 150 years, coinciding with the First Half of the Age of Oil. Various remedial strategies were discussed in the Workshop, but it was feared that the scale of the problem was of such magnitude that they would not meet their objectives.

The general conclusion from the Workshop seemed to be that the nuclear option was an optimal strategy both in terms of climate change and energy supply. The resource was deemed to be near infinite, being even extractable from seawater; toxic waste disposal was feasible; and the risks of catastrophic explosion due to accident or malign intent were acceptable. The scale of investment needed to upgrade and replace existing facilities is however substantial.

There was wide acceptance that the development of alternative energy from tide, wave, solar, geothermal, wind and bio-mass sources deserve every encouragement, not only in mitigating climate change but to help offset the natural decline of oil and gas. Their reduced net-energy yield however means that they are not substitutes as such.

The development of the substantial remaining deposits of coal and heavy oil (tarsands, oil shales etc) was considered and generally encouraged, notwithstanding the lower net energy yields and the need for new technology to mitigate the consequential environmental impacts. The growing reliance of China on coal-based energy was seen as a matter of considerable environmental concern.

6. Social and Political Response

The Workshop paid some limited attention to the development of social and political structures appropriate to the Second Half of the Age of Oil. Such issues generally lay outside the remit or expertise of those attending, but nevertheless may prove to be critical to the development of new EU policy, perhaps being appropriate subjects for future Workshops.

In fact there is an impressive new awakening as various cities (including for example San Francisco) and communities begin to seek equitable solutions by reducing their energy consumption in response to Peak Oil. A report by R.Hopkins (Energy Descent Pathways) provides a useful outline of these initiatives. The notion of some form of energy rationing (such as the Tradable Energy Quota system proposed by Fleming) evidently deserves special attention. A proposal to reduce imports to match depletion rate was mentioned. (The subject is well covered in a new book : Heinberg R., 2006, The Oil Depletion Protocol - a plan to avert oil wars, terrorism and economic collapse; ISBN 10 0-86571-563-7)

The advocates of these strategies see the decline of oil as far from a doomsday message, having faith that a new more benign age may follow, noting that as many as one-third of the inhabitants of countries, enjoying an oil-based peak of consumerism, are already clinically obese, putting stress on the health systems. It is evident that these initiatives deserve every support from local, national and regional government.

Issues of population and migration may well be critical elements for survival but were too sensitive to address at the Workshop. They also run counter to classic economic theory favouring globalism, economic exploitation, and cheap immigrant labour, as entrenched in current policy. Nevertheless, the Workshop did comment on new national political strategies, epitomised for example by those of Venezuela, which do seek to preserve national natural resources and build equitable societies freed from the pressures of international trade and financial penetration. It was noted that the oil producing countries are singularly equipped to pursue such strategies. The threat of China with its excessive population, new mercantilism, and energy deficiency, was also seen as a matter of grave concern. The Workshop tended to assume that the so-called Developing Countries were both destined and entitled to reach the unsustainable excesses of the so-called Developed Countries. This may be open to re-consideration in the event that the former are found to be already living in a better equilibrium with the endowment on which Nature has ordained them to live.

The issue of Resource War was not substantially covered in the Workshop, although it was observed that control of oil is an obvious subtext to what has been described as the Third World War, as marked by the invasions of Afghanistan and Iraq, the threats to Iran and the response in terms of so-called terrorism.

Conclusion

It is evident that government is a slow-moving and difficult process heavily influenced by the momentum and mindset of past circumstances, but the Workshop may have marked a turning point as the European Union comes to prepare for the new set of circumstances that will dictate its policy options during the Second Half of the Age of Oil. Those organising the event deserve every accolade for their courage, responsibility and dedication in difficult circumstances.