Oil Change International

Exposing the true costs of fossil fuels

The IEA acknowledges peak demand is needed

This year’s IEA World Energy Outlook (WEO) contains a startling peak oil prediction.

In order to prevent climate change getting out of control, global demand for oil should peak by 2018 at only 1 million barrels per day (Mbpd) more than today’s demand level.

While the IEA has been much criticized for denying peak oil predictions of impending oil supply disaster, many commentators seem to brush over one of the most important elements of the energy watchdog’s analysis. How much oil can we consume if we are to have a chance of preventing average global temperatures rising above the critical 2oC mark?

This statistic is perhaps more important than the the estimates of how much oil we can produce to meet burgeoning demand because if we cannot consume all that oil without sending the climate over a tipping point, then we should not worry about whether we can raise production to such elevated levels.

Instead we need to target the maximum sustainable level of oil demand as a ceiling above which we cannot go. It would appear that we are already very close to it.

Indeed, the IEA explains that not only will aggressively reducing demand help to address climate change but it may also head off the threat of a peak oil supply crisis and reduce the vulnerability of oil importing countries to oil price shocks and related economic pain. In making this point the IEA was given to uncharacteristic emphatic prose.

If governments act vigorously now to encourage more efficient use of oil and the development of alternatives, then demand for oil might begin to ease quite soon and we might see a fairly early peak in oil production. That peak would not be caused by any resource constraint. But if governments do nothing or little more than at present, then demand will continue to increase, the economic burden of oil use will grow, vulnerability to supply disruptions will increase and the global environment will suffer serious damage. The peak in oil production will come then not as an invited guest, but as the spectre at the feast. (WEO 2010, P.126)

Clearly government action to aggressively reduce oil demand is in the public interest. But it isn’t in the oil industry’s interest. Particularly that part of the industry that is mostly shut out of the easier to produce oil in OPEC countries, the major international oil companies.

The IEA says that under its 450 Scenario – the scenario in which CO2 emissions are stabilized to 450ppm, which stands a 50% chance of keeping global average temperature rise below 2oC – oil demand must peak in 2018 at around 88 Mbpd. The stabilizing affect of this on oil prices will have serious consequences for the IOCs because of their increasing concentration in expensive and risky marginal resources such as the Canadian tar sands, the offshore Arctic and ultra-deepwater. The IEA says this about the declining need for oil under the 450 Scenario:

the need for exploration to find and then develop reservoirs that are as yet unknown is only two thirds of that in the New Policies Scenario, a difference of almost 60 billion barrels. This reduction is equivalent to two-thirds of the estimated volume of oil that is thought to remain to be found in the Arctic and is comparable to the total volume of oil discovered during the past five years. As the oil industry typically develops easy-to-find oil first, this reduced need to bring on new capacity allows the industry to dispense with some of the more costly and more environmentally sensitive projects. (P. 451)

But the industry is not planning for this scenario. The investments it has made in Canadian tar sands and the current push to explore for oil in the hostile and fragile offshore Arctic, show that industry is focused on business as usual, a situation that the IEA claims will ensure catastrophic climate change, economy crippling oil prices and energy insecurity.

In this paper, my co-author and I show how the WEO 2010 demonstrates that the tar sands industry is gearing up for production levels that are not only unsustainable under the IEA’s 450 Scenario but also unrealistic even under the climate wrecking Current Policies Scenario.

We further show that while this year’s 450 Scenario forecasts oil demand in the 2030s at some 25% less than business as usual, these forecasts under all scenarios have been dropping precipitously for the last 7 years. In fact the IEA has slashed some 37 Mbpd off the forecast for oil demand in 2030 between the scenarios across the period. This suggests that not only have we achieved significant potential savings over this decade without trying very hard but that in order to save the climate we can try harder and achieve our goals.

We also show that advocates for the oil industry, be they Canadian government officials, trade associations or oil company executives, frequently refuse to acknowledge the 450 Scenario and instead misuse WEO figures to justify their environmentally and economically unsustainable plans to expand tar sands production.

It will be interesting to see whether the IEA, when it holds its ‘IEA-Day’ event in Cancun on Tuesday, will call the industry to task on this and point out that rather than scraping the bottom of the barrel to meet unsustainable levels of demand, we should be watching the ceiling set by climatic and economic realities, and making sure we stay well below it.

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