Taylor on Travel

People in the travel industry have enough to think about without 'peak oil', but bear with me. It is a notion that has been around for a while and refers to the point when world oil production will peak and then fall. Oil companies have routinely dismissed the concept. For better or worse, it may soon be upon us.

Chris Skrebowski, consulting editor to Petroleum Review, told a seminar organised by the Travel Foundation last week that the world will reach peak oil in 2011 - although he noted it could be earlier - and this is the major reason for the high oil price.

Skrebowski's argument is laid out in the current Travel Weekly and can be found at www.Travelweekly.co.uk. In essence, 25 of the world's major producers are already in decline, oilfields are depleting at a rate of 4.5% a year or more and there is little oil left to discover. This is reflected in the escalating costs of production and increasing delays in development.

Of additional concern to airlines, the greatest shortfall is in middle distillate or light, sweet crude oil - the type from which jet fuel and diesel are refined. According to Skrebowski, "We may already be at the peak for light, sweet crude."

The implications for travel are profound. Fuel prices may stabilise at some new level, but no one knows how high that will be.

Let's deal with alternative fuels another time. At this moment the world depends on oil. Why has peak oil come to the fore now? Oil was $20 a barrel in 2003 and $10 not long before that. Surely, if peak oil in 2011 was a realistic prospect it would have affected the price earlier?

Richard Miller, who retired from his job as a geochemist for British Petroleum this year and also addressed the Travel Foundation, can explain.

Oil reserves are included in oil company financial reports and listed among their assets. Their share prices and future profits depend on the amount of extractable oil in the ground.

As a consequence, says Miller, the oil giants do not give an accurate picture of what is there. "The oil companies' agenda is to maximise revenue and increase shareholder value and when they speak [of reserves] they do it to influence markets and governments," he says. "If they said peak oil is coming, what would happen to their stock price?"

So they conceal the depletion of fields in the way they report reserves. "The companies talk about 'barrel-of-oil equivalents', which means oil and gas," he says. "But gas supplies are in good shape, so it obscures how bad the oil situation is. Or they talk about the reserves-to-production ratio and say there is 40 years of supply. It is entirely misleading. Oil fields decline soon after they come into production. It does not matter what is in the ground, but how quickly you can get it out."

Oil can be tricky to extract. Depending on the field, extraction may not easily be increased without compromising future production. It may even destroy a field, despite oil remaining in the ground. Miller points out the oil companies acknowledge this while avoiding drawing the consequences. For example, Shell has said the era of "easy-to-access oil" is over. "That implies difficult-to-access oil can replace existing supplies," says Miller. "But it cannot."

Peak oil has been predicted before - 1995 was once touted as a turning point and the prediction proved wrong. But the increasing number of experts convinced peak oil is imminent is striking.

Jeremy Leggett is a former seismologist who worked in the oil industry, advising companies on where to drill and training their personnel, before leaving to write a series of books exposing the workings of the industry and the coming of peak oil. Anyone who wants to know more could do worse than read Leggett's book Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis, published in 2005, or The Carbon War (1999) - an expose of the oil industry's extensive efforts to deny the connection between carbon fuel and climate change.

By chance, at a recent industry lunch I sat next to a seismologist who works with an oil company in Houston advising on where to drill. I asked if he was aware of Leggett? "Yes, I've heard him speak." What did he think of Leggett's arguments? "Well, he is right." And is he right about peak oil? "Oh yes."

On Wednesday (July 9), the Financial Times reported: "Total and Eni, two of Europe's biggest oil and gas companies, plan to bring nuclear power to countries in the Middle East." The story referred to the United Arab Emirates and another unspecified country.

Read that again. Oil companies are to sell nuclear power to the world's greatest oil producers at a time when the oil price is at a record and they claim reserves are plentiful. Think about it.