[Peakoil] just in case you missed it in May...

[Jenny Goldie]

This interview was carried by Australian Broadcasting Corporation on May 13, 2008.  See

http://www.abc.net.au/lateline/content/2007/s2242621.htm.

Nothing governments can do about rising oil prices: oil expert Richard Heinberg
Australian Broadcasting Corporation

Broadcast: 13/05/2008

Reporter: Tony Jones

Oil expert and author Richard Heinberg joins Lateline to discuss the phenomenon of peak oil.

Transcript
TONY JONES: Now to tonight's interview with Richard Heinberg. He's one of the world's leading experts on the phenomenon of peak oil. That's the point at which the world's oil reserves go into decline. The idea is that having reached its peak it's all downhill from there and there's evidence that global rates of oil discovery have been declining since the 1960s, and that new oilfields are becoming more and more inaccessible. 

So as demand increases and supply decreases the price of oil goes up and up and up, as we've painfully experienced in recent years. No one really knows when we'll reach peak oil. It may have already happened, it may take another three decades. Why has the price of oil gone up so fast and so high in recent years? How much higher could it go and can anything be done to reverse this relentless process? 

Richard Heinberg has written a series of books on the oil crisis including 'The Party's over', 'Power Down' and his latest 'The Oil Depletion Protocol'. I spoke to him a short time ago in Santa Rosa, California.

Richard Heinberg, thanks for joining us.

RICHARD HEINBERG, oil expert and author: My pleasure.

TONY JONES: Now let's start with the recent oil price predictions. Goldman Sachs is saying within two years oil could reach US $200 a barrel. Other analysts have a different view and say it could go down back to $40 a barrel. Where do you sit on this? What do you think is going to happen?

RICHARD HEINBERG: I think the price could lose some ground temporarily but over the long term there's nowhere for oil prices to go but up. And we could, in fact, see prices considerably above $200 a barrel within the next two or three years.

TONY JONES: What does this mean for governments like Australia? We're just about to have our Budget released in this country. The Federal, the new Labor Government came to power promising to try and do something about rising food prices in supermarkets and rising oil prices. It sounds like their hands are going to be tied for the foreseeable future?

RICHARD HEINBERG: Yes, I think that's true. I don't think there's anything that the Australian Government can do or the US Government can do about rising oil and food prices and by the way, these two things are connected. The rising oil prices create increased costs for farmers. Also the cost of shipping, food and just about everything else is increasing, so these high prices are going to have knock on effects through the economy. The airline industry is going to be hard hit and again, there's very little that governments can do other than to start planning for high oil prices. We should be redesigning our economies to operate with less oil. Fundamentally that's the only sane policy response. We can't just hope somehow for oil prices to come back down to $40 a barrel. It's not going to happen.

TONY JONES: I'll come in a moment to how governments could do that. But in the meantime, we had only last week the Noble Prize winning economist Joe Stiglitz on this program. He actually blames the Iraq war for the trigger that led oil prices to start spiralling. Do you agree with him?

RICHARD HEINBERG: Well, I thought the US invasion of Iraq was a terrible idea at the time and still feel that way, so if I thought that somehow the high oil prices could be blamed on that I'd be happy to do so. I think he may be right that there were some minor trigger effect there. But really, the situation we're seeing now mostly has to do with the fundamentals of supply and demand. We have more countries every year in the category of oil importing nations and fewer countries every year that are able to export oil. That's the nub of the issue.

TONY JONES: Including former oil producing countries like Indonesia, for example?

RICHARD HEINBERG: And like Great Britain and Norway. Great Britain has now become a net oil importing country again after 30 years of being an exporter.

TONY JONES: Stiglitz takes quite a conservative approach in his book on the costs of the war. But he makes the point that before the war the futures market which usually gets these things pretty right, had already factored in the increasing demand from the boom economies like India and China and yet the increases that have happened are way beyond what the futures market expected, which is why he tends to blame the war. And he makes the further argument that the big Arab oil producing companies have decided keeping their asset in the ground and still making record profits is the way to go?

RICHARD HEINBERG: He's right on the latter point. There has been a definite change of attitude on the part of some of the Arab oil exporting countries, but it's entirely understandable. Look at Kuwait, for example. There was a little kerfuffle a couple of years ago when oil intelligence Weekly published an article suggesting that Kuwait's real oil reserves were only half of what that country had been telling the world and the Kuwaiti Parliament then went to the oil industry and said, "Is this really true? What are our real reserves?" The oil minister said, "I'll get back to you" and evidently still hasn't. The evidence is clear that Kuwait and a number of other oil exporting countries have overstated reserves pretty substantially, and these are countries which rely on oil exports essentially for most of their income nationally. So what are they going to do for an encore once the oil is gone? It really makes sense for them to slow down on production rather than pumping the oil out of the ground as fast as they can and be left with nothing for the future.

TONY JONES: Do we know the truth, though? The global oil industry has consistently revised oil reserves upwards over a period of time. It is estimated there's more than a trillion barrels left underground just from known reserves at the moment which would last for a considerable amount of time obviously?

RICHARD HEINBERG: Well, yes. If we could use those reserves at any arbitrary rate, the problem is oil is getting harder and hard tore get out of the ground. We've used the cheap, easy stuff. We've used the oil we could get from Texas and Oklahoma and even the North Sea and now what we're finding are oilfields in ultra deep water and places that are extremely difficult to access from a technical standpoint. We're also starting to get more from places like the Canadian tar sands where there's an enormous amount of resource in place, but it's not liquid oil. It's the stuff that has to be converted into synthetic fuel using enormous amounts of water and natural gas. Very resource intensive and environmentally ruinous process. So the easy glory days of the oil industry are over and just about everybody in the industry would agree with that statement.

TONY JONES: So you don't believe we may be facing a sort of oil embargo as we faced in 1973, but this time by stealth?

RICHARD HEINBERG: No. In 1973 what we saw was political and it was short term. What we're seeing now is long term. I don't think this is ever going to turn around. Most of the, even the Arab oil producers are producing flat out. They're producing as much oil bringing it to market as fast as they can. The only possible exception is Saudi Arabia and the Saudis may have as much as two million barrels a day in spare production capacity. We don't know for sure because there's no way for a third party agency to audit the Saudi reserves or even their production data. But evidence would suggest that they probably have some production capacity in reserve. That's about the only country that can say that.

TONY JONES: I suppose that is the key question. If they were hiding behind the notion of peak oil that notion is terribly unclear, because we may have already passed the peak oil point or, in fact, we may not pass it I think you acknowledge yourself for another three decades which puts a completely different time scale on the whole event?

RICHARD HEINBERG: There are a few holdout analysts who are saying we may not see global oil production peak for two or three decades, but they're substantially in the minority these days and becoming ever more so. I think that the evidence is lining up very strongly in favour of a notion of a near term global oil production peak. For the last two years oil declines have led oil advances, I think a pretty good argument can be made that we're there right now.

TONY JONES: So in the meantime, how much pressure is there going to be to open up brand new areas for exploration, parts of the Arctic which haven't been drilled and even the Antarctic which currently where oil drilling and exploration are forbidden because it's considered to be a world park at the moment?

RICHARD HEINBERG: There is tremendous competition to gain access to these areas. Russia, Canada and some other nations are laying claim to areas of the Arctic to be able to drill there in the future. This is not very prospective area. In other words, from a geological standpoint it's very unlikely we'll find substantial amounts of recoverable oil in the Arctic, and I think it's a sign of the desperation of the industry that there's so much excitement about going into a place that will have unprecedented challenges from a technical standpoint just in operating there. We don't have the equipment that can operate in the Arctic. It's going to be decades before oil can be commercially produced there and yet, we see this enormous competition for access to the place. I think it's, as I said, a sign of desperation.

TONY JONES: At what point in the price cycle does it become economic to convert coal into synthetic fuel, gas into liquids, for example?

RICHARD HEINBERG: Well, the technology for turning either coal or natural gas into liquid fuels is already in place. South Africa has been turning coal into liquid fuel for many years. A company called Sassal operates in South Africa and produces 150,000 barrels a day. That's only a small part of South Africa's oil consumption. They use about 450,000 barrels a day. Even in the one country using this technology they're not getting even a majority of their oil from it. So it's going to take an enormous amount of investment to build coal to liquids plants. These are very expensive facilities to build. We're taking a low grade hydro carbon, namely coal, we're putting it through an intensive process that costs about 40 per cent of the energy in the coal to produce a expensive synthetic fuel. Again, it can be done. I think probably the US Department of Defence is going to go in the direction of coal to liquids but frankly I think it's unlikely we'll see a very large scale implementation of this technology, just because it is so expensive and it's so inefficient from an energy standpoint.

TONY JONES: Then you have the incoming problems obviously of the economic viability of doing that once you add into it the global warming costs?

RICHARD HEINBERG: Well, of course, yes. We're talking about again an environmentally ruinous practice. The Sassal plant in South Africa can be seen from space. It's the greatest single point source of pollution on the entire African continent and that's just 150,000 barrels a day and the world is using 85 million barrels a day of liquid fuel. If we were to try to replace any substantial portion of that with coal to liquids we would be looking at a climate doomsday scenario.

TONY JONES: You've thought about this Richard obviously in great detail over many years now and your proposed plan for the world, in fact, is to produce a kind of global agreement similar in a way to the Kyoto Protocol which you call the oil depletion protocol. Can you tell us how that would work and how hard it might be to get such an agreement between competing economies?

RICHARD HEINBERG: I wouldn't pretend to suggest it won't be difficult to get that kind of agreement, but essentially it would be a protocol to reduce oil consumption globally and nationally and also oil production by the world depletion rate which is about 2.5 per cent per year. In other words of the oil that's left to extract out of the ground we're using about 2.5 per cent of that every year. If we reduced our consumption by that same amount that would stabilise prices and it would reduce the incentive for competition and perhaps even deadly competition in the future for access to the remaining supplies of oil in the world. I honestly see the oil depletion protocol as the only way forward that doesn't lead to global oil wars and to economic collapse.

TONY JONES: What do you think it would take for this to become top of the agenda, for example, in a new White House in Western governments around the world and indeed in the booming economies of China and India, what would it take to move that idea to centre stage?

RICHARD HEINBERG: Well, obviously it would take some political courage. Policy makers would have to understand once and for all that oil prices are not going down they're only going higher. So the only thing we can do at this point is to adapt to this new era that we're in of rapid oil depletion. That means that if we're going to save our economies we have to undo our vulnerability to oil scarcity and higher prices and the only way to do that is to reduce our consumption. Sweden has already taken this step. The Swedes have made it a target to become oil dependent by 2020 and there are a number of cities in North America that have made a similar kind of commitment. Portland Oregon, Oakland California, and a number of others have established oil vulnerability task forces and are looking at ways of reducing their city oil consumption quite dramatically over the next few years. Now this kind of proposal has yet to make it to the halls of Congress and the US or to Parliament in Australia, but I think it's important that the idea be brought forward as soon as possible, because the sooner we start reducing nationally our oil consumption the sooner we can stabilise prices and begin to adapt to the world that we're moving into.

TONY JONES: You raise this spectre of oil wars and future conflict over oil. What do you mean exactly? Where would you see that arising?

RICHARD HEINBERG: Well, what we're seeing is not just a likely decline in total oil production, but especially a decline in available oil exports, because as I mentioned earlier the oil exporting countries are seeing such rapidly increasing domestic demand. So the amount available on the global export market could decline by up to half just within the next 10 to 15 years. That's going to put enormous pressure on major oil importing countries like the United States and China. The US is the world's foremost oil importer, China is the world's second foremost oil importing countries. These two countries are going to head to head for access to supplies in central Asia, Africa, in the Middle East, and it's difficult to envision a situation in which that competition would not become very, very intense.

TONY JONES: Not so long ago, there were some senior neo conservative thinkers in Washington who were actually advocating the United States taking over Saudi Arabian oilfields. The implications of that are extraordinary, of course. Could you imagine ever reaching the point where that became seriously part of the administration's agenda?

RICHARD HEINBERG: Absolutely, yes. If there were to be a revolution in Saudi Arabia and the country were to be taken over by any political party or group that was not friendly to America's interest, then I think it's very likely that the US would invade. 

TONY JOENS: Richard Heinberg, we'll have to leave you there. We thank you very much for taking the time to talk to us tonight on Lateline.

RICHARD HEINBERG: Thank you Tony, it's been a pleasure.

 


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