Is the world set to face an oil crunch?

Sir Richard Branson, founder of the Virgin Group, has joined fellow leading businessmen in warning that the world is running out of oil and will face an oil crunch within five years if action isn't taken.

Branson, whose rail, airline and travel companies are sensitive to energy prices said, "The next five years will see us face another crunch - the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well."

He states in a foreword of a new report on the crisis, "Our message to government and businesses is clear: act. Don't let the oil crunch catch us out in the way that the credit crunch did," the British paper The Guardian reports.

The latest warning follows that of the warning in August last year that the world could be running out of oil due to most of the major oil fields in the world have passed their peak production. The first detailed assessment by the International Energy Agency (IEA) found of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago, the British paper The Independent warned.

Then in November, peak oil was questioned when a whistleblower told The Guardian the figures provided by the IEA - and used by the UK and US governments for much of their planning scenarios - were inaccurate.

"The IEA in 2005 was predicting that oil supplies could rise as high as 120 million barrels a day by 2030, although it was forced to reduce this gradually to 116 million and then 105 million last year," said theIEA source.

Support

Branson is joined in support by British executives including Ian Marchant, chief executive of Scottish and Southern Energy group, and Brian Souter, chief executive of transport operator Stagecoach.

Their call for urgent government action comes amid a wider debate on the issue and follows allegations by insiders at the International Energy Agency that the organisation had deliberately underplayed the threat of so-called "peak oil" to avoid panic on the stock markets.

Ministers have until now refused to take predictions of oil droughts seriously, preferring to side with oil companies such as BP and ExxonMobil and crude producers such as the Saudis, who insist there is nothing to worry about.

But according to Jeremy Leggett, founder of the Solarcentury renewable power company and a member of a peak oil task force within the business community, there are signs things are going to change. "[We are] in regular contact with government; we have reason to believe their risk thinking on peak oil may be evolving away from BP et al's and we await the results of further consultations with keen interest."

The issue arose at the recent World Economic Forum in Davos where Thierry Desmarest, chief executive of the Total oil company in France, said that the world could struggle to produce more than 95 million barrels of oil a day in future - 10 percent above present levels.

Report

Chris Skrebowski, an independent oil consultant who prepared parts of the peak oil report for Branson and others, said that only recession is holding back a crisis: "The next major supply constraint, along with spiking oil prices, will not occur until recession-hit demand grows to the point that it removes the current excess oil stocks and the large spare capacity held byOpec . However, once these are removed, possibly as early as 2012-13 and no later than 2014-15, oil prices are likely to spike, imperilling economic growth and causing economic dislocation."

Skrebowski believes that Britain is particularly vulnerable because it has gone from being a net exporter of oil, gas and coal to being an importer, and is becoming increasingly exposed to competition for supplies.

But Saudi Arabia launched a counter-strike at Davos, insisting the issue was overblown. "The concern about peak oil is behind us," said Khalid al-Falih, chief executive of Saudi Aramco.

Tony Hayward, the BP chief executive, has also downplayed fears about dwindling supplies.

 

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