Sea and Persian Gulf.
Oil and Gas in the Middle East.
The massive deposits of hydrocarbons in the Middle East always spring to mind when significant political events occur in the region. Thus, it is salient that Iran hosts the world’s second and third largest reserves of gas and oil, respectively. Even if deliberate actions are not being undertaken, intended to control the outward flow of oil and gas, almost inevitably there are consequences for this. One is reminded of the finite nature of such natural resources, that even while they remain plentiful in the ground, the day will come when they are no longer technically or economically viable to extract in quantity, and a new age will either have already emerged or be forced upon us – i.e. by design or default.
Hence, the severe restrictions in the flow of oil though the Strait of Hormuz, resulting from the recent US-Iranian attacks, may be seen as a stark rehearsal for the consequences of a severe shock in the global oil supply, as might be experienced from a "peak oil" crisis, with volatile price spikes and supply chain disruptions. Although “peak oil” per se, refers to an irreversible long-term production decline, given that around 20% of the world’s oil and 20% of its liquefied natural gas (LNG) passes through the channel, a simulation of an acute loss in global hydrocarbon availability is provided.
Since shipping has come to a "near standstill" at this chokehold, major energy providers have been compelled to put a brake on oil production as storage facilities begin to fill to capacity. Saudi Aramco has said the present crisis is “by far the worst the region has seen”, and warned of “catastrophic consequences” to global oil markets, if the war continues to block shipping there.
It has been reckoned that should this disruption last for more than four weeks, oil prices could be driven to above $100, and perhaps to $150 per barrel, which reflects the kind of economic shock expected when oil becomes materially scarce against demand: indeed, as we saw in 2008, when Brent Crude spiked to $147, thought to have been triggered, in part, by fear over growing demand for oil exceeding available supply. Similar price escalations followed the invasion of Ukraine, just over 4 years ago, again reinforcing the vulnerability of the global energy landscape.
A wider issue.
The Hormuz disruption has already raised fears of a 1970s-style energy crisis, with rising fuel costs expected to fuel global inflation, increase business costs, and bring recession. Since up to one-third of the world’s fertilizer trade also passes through the region, our economic and functional dependency on a single, fragile channel, is further highlighted.
While high oil and gas prices may offer some short term gains to producers and traders, it is clear that we place ourselves in grave peril by continuing to rely on volatile, high-risk, imported energy at current scale. Particularly from a European perspective, it has been pointed out that the North Sea holdings of oil and natural gas will be significantly exhausted within a decade or so.
Thus, some commentators have voiced from this a rallying cry to accelerate the transition toward renewable, domestically produced, energy sources that are less jeopardised by unexpected external shocks.
Knock-on effects.
This is just the tip of the iceberg, and if we look to the UK’s food system, we see it is massively vulnerable to supply chain failures, since we import more than half of the food actually eaten here, and much of what we do grow relies on imported fertilizers, e.g. 60% of our nitrogen fertilizers are brought in from abroad. Professor Tim Lang, an acknowledged expert on food systems, has averred that the UK must ready itself for climate shocks or war by stockpiling food to avoid people starving.
There exists, therefore, a whole system of interlinked liabilities, but which depend fundamentally on imported hydrocarbons, and commodities made from them, including nitrogen fertilisers and plastics.
Some by-products from oil and gas are less immediately obvious, for example sulphur, which is a nuisance to the industry, and takes technology, money and indeed hydrogen (also made from natural gas) to remove it and stop it from deactivating noble metal catalysts, used in further downstream refining, and more significantly, to reduce emissions of sulphur dioxide, when these materials are combusted, which is a major cause of air pollution and acid rain.
In the wider world, however, sulphur is a material with very many important applications, primarily though its conversion to sulphuric acid. These include the creation of agricultural fertilizers, but also the extraction of metals such as copper (which is the bedrock of a putative largely electrified future “low-carbon” energy system), and cobalt for lithium ion batteries, which will be increasingly necessary to provide storage for intermittent wind plus solar energy, as they increasingly substitute for this same oil and gas.
Since 80% of the sulphur used in the world is derived as a “hitchhiker element”, riding on the back of oil and natural gas production, eventually, more mined sulphur (and that recovered from smelting mined metallic ores) will be necessary to make sulphuric acid, if we manage to significantly curb our use of fossil fuels.
Extra-heavy oil.
Recent events in Venezuela have also proved controversial, but the nation is said to have the world’s largest reserves of oil. Now, all oil is not created equal, and most of that from Venezuela is of far lower quality than that from Iran, say. There are issues too, over the amount of refining capacity available for dealing with oil that is either much lighter or much heavier than that from Iran. Hence, while over 300 billion barrels is claimed for Venezuelan ("extra-heavy") oil , its Energy Return on Investment (EROI) is very low (3-6), to be compared with an average of around 17 reckoned for global oil.
Along with a very high viscosity, similar to “tar”, and heavy sulphur content, the material has been said to be practically unusable, “at current prices”. Thus, the reckoned 200 billion barrels worth of high quality Iranian oil is a much better bet, on all counts.
The term “at current prices” is salient, and in principle, Venezuelan oil is not entirely unusable, but it is extremely challenging and costly to produce. To get this “extra-heavy” oil out of the ground requires specialized infrastructure, massive investment, and blending with lighter, imported liquid hydrocarbons to move it to the marketplace. Since the production infrastructure has been left in very poor shape, due to underinvestment, mismanagement and the effects of sanctions, it may cost over $100 billion to make it fit for purpose again.
The overall “getting” process is also highly polluting, with high greenhouse gas emissions from extraction, methane leaks, and heavy refining requirements. Sustained high oil prices at say $100 a barrel, or more, make such kinds of “unconventional” production more attractive, so long as the economy can bear them. That noted, a rapid recovery in Venezuelan oil production is considered unlikely.
Oil prices, production and consequences.
There is a [debatable] “goldilocks” window of between $50-$100, below which production is unprofitable, and above which, costs of oil products become increasingly unaffordable. The breakeven price for Venezuelan extra-heavy is around $80, but it typically trades at $12-20 less than the world benchmark price, in consequence of the greater expenses incurred in its production. While Iranian oil is cheaper to produce, the “fiscal” breakeven price (i.e. to support the national economy) is closer to $160 a barrel, and much higher than that for Saudi Arabia ($95). What it may now rise to in the coming years is anyone’s guess.
Naturally, the prevailing oil price will be a significant factor in determining exactly how much oil is produced, at points along the unfolding timeline, but Charles Hall, Roger Bentley and Jean Laherrere have reckoned future global oil production using Hubbert Linearization techniques.
Their results indicate that, while the exact timing of the “peak” is shunted forward, albeit incrementally, by the respective addition of NGLs, extra-heavy oil, shale (both kerogen, and light tight) oil, coal/gas-to-liquids, refinery gains and biofuels, to the tally, oil production will begin to decline over the next decade or so; hence why the supply restrictions incurred by the Hormuz situation (and the war in that region, more broadly) may prove to be a rehearsal for the consequences of actual “peak oil”.
Indeed, the present global societal system is becoming increasingly unstable, with cascading events across the Middle East further increasing the risk of massive changes in the wider world order. As has been shown, when complex, adaptive systems begin to collapse, their behaviour becomes increasingly volatile, and I must say, this is how the world is looking to me, as an unfolding “climate, nature... [and also] resource and political crisis”.
In context to this, I note that Nafeez Ahmed has written recently about the collapse of the US “empire”, signifying the fall of a civilization: He convincingly argues that we are indeed on our way to a new age, and must adapt to this, rather than trying to restore the old equilibrium:
“The system is about to enter its most turbulent period of catastrophic decline. This is terrifying. The ramifications will be disastrous. But regardless of the fanatical fantasies of those at its helm, there is no going back.”
What about "peak oil demand"?
Undoubtedly, a transformation of our global energy systems is a critical factor in trying to hold any kind of steady course, and this is usually focussed in terms of installing more renewable (low carbon) energy, mainly wind and solar, which offers multiple benefits, in terms of getting away from carbon-polluting and precariously placed, imported fossil fuels, mainly oil and gas. However, the “new” energy system will still rely on fossil fuels to build and maintain itself, until it is of sufficient size to feed back energy for these purposes.
Given the current massive energy use by global techo-industrial civilization of well in excess of 600 Exa-Joules (EJ), around 80% of which is derived from fossil fuels, this represents a huge challenge. Since wind plus solar, combined, account for 6% of total primary energy (reckoned using the “substitution method”, which divides the actual output in TWh by about 0.4, to allow for the inefficiencies of fossil fuel systems), this would need to be expanded by a factor of 13, to fully replace all, current, gas, oil and coal (513 EJ), which means installing around half the total wind + solar that currently exists on Earth (41EJ), every year out to 2050.
The increase in W+S achieved from 2023 to 2024 is impressive indeed at 16%, but in terms of actual energy amounts to an extra 5.7 EJ. Hence, we may deduce that the present rate of installation of W+S would need to increase by a factor of nearly 4. Most likely, such a total substitution would not be sought, and might be difficult to achieve, due to the vast quantities of materials needed to build it out, especially when large-scale battery storage is included.
To look at the problem from another angle, the IEA has estimated that the future, mainly electrified, energy system will be much more efficient than the present, largely fossil fuel based one, but would still need 2.5 times present electricity generation (20% of end use energy, now, being in the form of electricity). W+S now accounts for about 15% (up from 13.4% in a year) of the present electricity mix, but is expected to be 70% in 2050; however, the model also depends on more nuclear capacity and CCUS being brought on-stream.
This implies that a 12-fold increase in W+S is required, and the installation rate must increase by about 4-fold, along with the additional nuclear and CCUS requirements. Hence the two sets of sums are in reasonable agreement, but allowing the caveat that such a “steady” displacement of fossil fuels is not rapid enough to hold back emissions sufficiently and avoid breaching the 1.5 degree target. Indeed, we have probably, at most, 3 years left of the “carbon budget” to accomplish this.
While moving away from fossil fuels is essential, we must avoid any "holes" in supply occurring, either while the low-carbon Plan B is being rolled out, and fossil fuel stations are closed down, or from any "variability" in the final, installed system. Nonetheless, some predictions of future oil use, e.g. by the IEA, show no decline in demand, and even growth, out to 2050.
It is hard to see how this will hold up in practice, since falling EROI for oil means that by 2050, half of the energy content of “oil liquids” will be consumed in their production. As EROI falls, the oil industry must consume more of its own output to keep production going, a phenomenon that may make continued high-level investment inefficient and economically unattractive (a kind of “energy cannibalism”). Indeed, it has been proposed that falling EROI for “oil liquids” may become a limit to a rapid and global low-carbon energy transition.
It seems more likely therefore, that we will experience a decline in the global oil supply, in accord with Hall, Bentley and Laherrere’s predictions.
Our future – energy and beyond?
Affordable oil is a precious and finite material. While fracking bought us some time, the robustness of this industry is now in question. “Peak Oil Demand” is now forecast to be a long way off, but can sufficient oil supply be maintained to meet that demand? Climate change/emissions considerations, aside, once the oil and gas are gone, they are gone, and it would be sage to save them for specific future uses where substitution will be difficult or impossible.
Given the relative slowness of the necessary timescale for introducing a largely W+S based energy system, and doubts over the availability of sufficient materials for doing this, we must give focus to reducing our demand for energy as a critical strategy in creating a viable energy future. The Centre for Research into Energy Demand Solutions (CREDS), produced a report which concluded that the UK could halve its energy use by 2050. Yet, as has been pointed out, it is “not only energy”, and while decarbonising our energy sources is vital, this alone will not solve the underpinning problem, which is that the human species is in ecological overshoot.
Thus, reduction in our demand for all resources is essential, or our climate targets (“carbon tunnel vision”) may prove no more than hopeful and unrealistic attempts to preserve business as usual, while the polycrisis deepens. We face a “great simplification” in which relocalisation is a key strategy.
Through such grassroots means, mitigation is achieved through reduced consumption, the production of food and energy at the local level, and by creating less waste. Adaptation arises from the creation of resilient, self-sufficient communities that can better cope with supply chain disruptions and the impacts of a changing climate (in all respects), along with a restoration of wild nature, thus providing some buffer to whatever shocks will come. Adopted on the grand scale, as a “village of globes”, both the long-term sustainability of ecosystems and the well-being of local populations may be supported across the world.
