ADJUSTING TO PEAK OIL
by Andrew McKillop
Former Expert-Policy and programming, Divn A-Policy,
DG XVII-Energy, European Commission
November 24, 2008
Future shock
Like it or not, the world is moving rapidly to absolute peaks in the capacity to find, prove and extract ever more oil and gas. The oil peak will arrive well before the gas peak. The time needed to reach the maximum possible production rate for ‘all liquids’, that is including deep offshore oil, heavy oils, and tarsand or bitumin based ‘synthetic’ oil, as well as cheaper-produced ‘conventional’ crude, is probably less than 4 years from 2007. The extact time required will depend more on how world and regional oil demand profiles evolve, the intensity of global economic growth and recession, and spare capacity of oil exporter countries, than net additions to world oil production capacity which have fallen to average rates far behind annual demand growth.
Since 2002-03, and until 2007-08, world oil demand has attained its highest rate of growth since the 1974-1977 period, comparing percentage growth rates for 3-year periods. This ‘vintage’ growth was not at all slowed by ‘vintage’ oil prices, at least until peak prices in 2008 of well above USD 125/bbl were attained. In fact oil world oil demand growth since 2000 accelerated with ever rising oil prices, confounding analysts who naively believe in the ‘price elastic’ theory, which claims that rising oil prices ‘automatically’ trigger a fall in oil demand, through ‘hurting’ economic growth, when exactly the opposite has in fact occurred, due to what I term Petro Keynesian Growth.
Forecasts of the likely ultimate peak production rate for world oil, and for the period of time this ultimate peak can be held as an ‘undulating plateau’ before production inexorably falls, are quite variable. We can however ignore forecasts made by the OECD’s IEA, and some of the oil major corporatios, claiming the peak will be “above 120 Million barrels/day” in about 2025-2030, before world oil output falls after about 2035. The end to the ‘undulating plateau’ of about 88 Mbd will likely be attained much earlier, by about 2010. World oil production in 2035 will almost certainly be less than 50% of today’s output. Few if any forecasters and analysts, we can note, now go much above a peak of around 100-115 Million barrels/day (Mbd) as their estimate of what the peak, on an ‘all liquids’ basis may or might be. A growing number of analysts, including Campbell and Lahererre of ASPO, using widely based and coherent data, forecast that world peak production of oil from all source will be not be much above 90 Mbd.
It is important to understand that ‘conventional’ or ‘classic’ economic growth, in rapidly developing urban industrial societies based on high personal consumption, is impossible without fast growth of oil and gas and electric power consumption. This ‘model’ has virtually no upward limit for personal oil consumption expressed as consumption per head of population. The ultimate example of this, the USA with about 295 Million population (300 M in 2008), consumes around 25 barrels/capita/year (bcy), while fast growing, industrialising China at present (2008) consumes less than 2.5 bcy. Given China’s breakneck industrial and urban growth, it is interesting to project Chinese oil consumption potential, assuming China wished, or believed it was possible to attain current American oil intensity through attaining similar levels of oil-dependent consumption – for example car ownership rates above 700 cars per 1000 population, or the more ‘moderate’ European Union or Japanese average of about 450 cars per 1000 population.
This in fact is not possible. At 25 bcy and assuming China’s population was frozen at the current level of about 1.2 Billion, this ‘hyperdeveloped’ China would consume around 80 Million barrels/day (Mbd) of oil, as well as vastly increased amounts of gas and electric power. When or if India, with its current 1.1 Billion population and, like China, experiencing explosive industrial investment growth and very fast economic growth (until late 2008), achieved the same extreme levels of oil consumption, this ‘developed and prosperous’ but entirely hypothetical India would need about 70 Mbd, assuming its population was frozen at 1.1 Bn.
Break in growth trends
It is not in fact phsyically possible for China and India to attain oil consumption rates anywhere near current US - or even European, South Korean or Japanese rates (about 10 - 17 bcy). At current US ‘hyperconsumption’ rates of oil demand per person (25 bcy), China and India alone, as noted above, would need a total of about 150 Mbd. If we assumed these two new super-giant industrial-urban, hyperconsumer states chose to limit their conventional economic development to European, South Korean or Japanese levels, their total oil demand of about 70 Mbd would still be impossible to manage and satisfy, in a world oil production system probably unable to exceed 90 Mbd before beginning to decline. The assumptions used are heroic: firstly there would be zero growth of their population (India could achieve 1.4 or 1.5 Billion inhabitants by about 2025), and secondly these two behemoth economies would be physically capable of maintaining their current industrial and economic growth trends, notably their oil and energy-intensive automobile, aerospace, military industrial, electric power, consumer manufacturing, agribusiness and urban development sectors.
Exactly the same, heroic assumptions regarding Chinese and Indian energy sector development now have to utilised by the IEA, but this time not to ‘square the circle’ concerning oil supply which whill not be available, but necessary action by China and India to limit their climate change gas emissions. China and India are the N°1 and N°3 coal consumers of the planet in 2008, and are therefore big emitters of CO2, even with very low oil intensity and natural gas intensity, relative to the USA, Europe or Japan. In order to substitute China and India’s growth of oil demand and gas demand and to limit CO2 emissions, the IEA projects extremely massive growths of all renewable energy development in these two countries, for example of new hydropower development equivalent to two Three Gorges projects per year (the world’s biggest single hydroelectric barrage). This again is simply impossible, making it necessary to consider entirely different world energy strategies – notably energy and oil saving in the OECD countries and coordinated worldwide development of renewables. This in turn will need acceptance that current fossil energy-intensive ‘hyperconsumption’ in the consumer societies cannot continue.
Other than physical and geological limits on water supply and non-energy minerals and metals, as well as distinct limits on bioresources and food supply, the “oil limit” for current types and rates of economic growth will soon act. This will apply to China, India and other large population, fast industrialising countries, through spiralling oil prices. The established or ‘traditional’ oil-intensive consumer economies of the OECD group, especially the USA, will perhaps surprisingly be the first to be economically affected by necessarily much more expensive oil, which can ‘rebound’ in price very rapidly, and very radically with the return of conventional economic growth. Conversely, the lowest income countries of Africa and rural regions of Latin America and Asia will be the least affected, due to their poverty, by oil prices rising above let us say USD 150/bbl. This is the complete opposite of much repeated, but false claims that “high oil prices hurt poor countries”, first and most.
In fact, higher oil and energy prices improve trade terms for nearly all lower income countries, most of which export raw materials and semi-finished products (that is ‘hard asset real resources’), whose prices tend to increase in line with oil and energy prices. Conversely, the oil-intensive, service-oriented OECD economies, where average oil consumption per head of population is typically 15 – 50 times that of populations in rural areas of low income African and Latin American countries, will experience a sharp decline in their terms of trade as oil prices rise. The net result on the global economy, until extreme high oil prices are attained, is rapidly increasing economic growth as oil price rises, for most low and very low income countries, but less rapid economic growth and greater risks of inflation, in the OECD economies. In addition, increased revenues for low income ‘real resource’ exporters quickly leads to increased solvent demand, by these countries, for manufactured goods – and oil. In turn, this buoys world oil demand even with price elastic demand falls in the OECD group, due to the very low rates of oil demand and oil intensity in poorer countries, resulting in their demand potential having practically no upper limit or ceiling.
Economic shock
Under these conditions of ‘open ended’ demand potential for world oil, and very fast demand growth whenever world economic growth is strong (as was the case in 2005-first Quarter 2008), rational policy choices will necessarily feature demand control and demand limitation as priorities. Assuming, of course hypothetically that the OECD countries firstly ‘capped’, and then slowly reduced their oil consumption per capita to 1990 levels (for example through rigorously applying Kyoto Treaty requirements in all OECD countries), world oil demand would still remain very strong, as the OECD IEA repeatedly notes in its ‘World Energy Outlook’ series of publications. Under almost any conventional scenario of continued economic growth, and only weak and episodic attention given to substituting oil, gas and coal in the OECD economy, world oil demand, in theory, will attain close to 120 Mbd in 2025. As already noted aove, this is probably impossible.
The world has only once attained a growth of 35 to 40 Mbd in oil production capacity over 20 or 25 years - the increase needed to satisfy the above ‘rational’ or ‘moderate’ demand growth scenarios, which already assume OECD oil demand per capita is quickly ‘capped’ and starts to fall by no later than about 2010-2015. Over the last twenty years, in fact, net additions to world oil production capacity per decade have rarely exceeded about 12 Mbd, which can be explained away, by some, as due to oil demand being insufficient to ‘force’ this supply expansion.
Certainly since 2004-2005, there is slow but increasing acceptance that the underlying trend for oil prices, and natural gas prices, is upward. Only deep economic recession, as in 1980-82 and probably since Summer 2008, can induce strong fall in oil demand. The period of derisorily low oil and gas prices, during the ‘cheap oil interval’ of 1986-99 is now rapidly receding into the past. With it, there is slowly growing comprehension that economic adjustment, and energy economic restructuring or ‘energy transition’ will be vitally necessary, and must start in the short-term future.
The reasons for this can be expressed in a very few figures, able to serve as targets. Current oil intensity per capita in the OECD nations (about 10 to 25 bcy), is simply unsustainable. A first target of reducing oil intensity, and gas intensity by 50% in 10 years can be suggested as difficult or challenging, but increasingly unavoidable. Any delay in adjusting to ever more expensive and physically declining oil supplies, and then gas supplies, will necessarily create economic chaos: oil prices of beyond USD 140/bbl attained in 2008 were likely well beyond an economically tolerable level. However, due to the much lower but fast growing energy intensities of the fast industrialising large population countries, notably China and India, more able to absorb these extreme high oil prices, there is an obligatory requirement for international cooperation and collaboration in seeking solutions to the coming ‘terminal crisis’ for cheap oil and cheap fossil energy-based economic development.
In the absence of cooperation, there is decreasing possible doubt there will be conflict or war for the world’s remaining oil and gas reserves and transport routes in the period 2010-2020. This will probably be triggered by grave economic crises themselves caused by spiralling oil prices, or actual physical shortage of oil.
Economic adjustment and energy transition
A check on the violent oil price swings of the 1980s and 1990s, and since 2000 shows these were effectively, and finally due to the vagaries of ‘neoliberal’ market doctrine – and had little or nothing to do with the real ‘fundamentals’ of supply and demand. Whether at the 3rd Quarter 1979/1st Q 1980 oil price of the most expensive crudes, at about 110 to 120 USD/bbl in 2008 dollars, or the 4th Quarter 1998/1st Q 1999 oil price, also in 2008 dollars of less than 12 USD/bbl for the same crudes, world oil demand and consumption in fact showed and shows only long-term, slow-changing trends and patterns. In addition and overall, demand growth dominates: since 1965 world population has almost exactly doubled, from 3.3 to 6.6 Bn persons, and world oil demand, as a year daily average, has increased about 2.6 times, from about 31.3 Mbd to 87 Mbd.
Only in deep recession, most recently in 1980-83, and now since Summer 2008, is there any fall in world demand lasting more than a few months. That is, in the last 30 years, to date, world oil demand has only decreased year on year in one three-year period, for the three years 1980-81-82. Further, even during that period of intense economic recession in the older, aging, de-industrialising (but still massively urbanised and extremely oil-intensive) OECD economies and societies, oil demand growth continued in the fast growing Asian industrial countries outside China and India. In fact, through the period 1972-85, growth of oil demand by the Asian Tigers or NICs, such as South Korea, Singapore and Taiwan, was by 600% or more (much more for South Korea) in a period during which oil prices increased about 400%. This more-than-somewhat ‘price inelastic’ economic behaviour, in a period of fast rising oil prices, was in no way associated with recession, business failures and spiralling unemployment. The resolute pursuit of fast, oil-based industrial development and export-led economic growth by the Asian Tigers, and today by China and India, is a tried and proven ‘economic success story’, which however has distinct limits, as we will learn in 2008-2009, with the demise of Chinese and India export-led economic growth, as well as that of the Asian NICs.
Any argument that ‘extreme oil prices’, at least those below about USD 125/bbl will or can cause an actual contraction in world oil demand – or even a big slowing of demand growth – is based on wishful thinking. Only prices close to USD 150/bbl can cause this. As we can quite easily conclude, from real world facts, no economic growth as we know the term is possible without oil, but no feedback mechanism exists, in the ‘liberal economy’, to prevent economic growth pushing oil prices above the tolerable economic limit. Redefining the term ‘economic growth’, as well as finding new regulatory mechanisms will therefore be necessary, for many reasons in addition to that of Peak Oil.
In the recent past, falling, or even collapsing rates of economic growth in the aging, service-oriented economies of the OECD has led to economic growth becoming a leitmotiv, a desperate quest to restore growth without redistribution of wealth by any other means but the market. Compared with the period 1970-1980 in which oil prices were up to 3½ times today’s levels in real terms, economic growth rates for the OECD countries in the period 1992-2002 had, in reality and on average, fallen by over one-half. Few of the G-7 big economies obtained growth rates much above 1.5%/year on a real GDP base through 1992-98 with oil prices often below $20/barrel in dollars of 2003. Cheap Oil, we can conclude, is far from being a ‘passport to ecomic growth’.
In the 1976-78 period, with oil prices in today’s dollars often above USD 50/barrel, their growth rates (real GDP base) averaged above 3.5%/year. The quest for growth leads to economic agencies of the OECD group, like the IEA, being constrained to plan for and forecast ‘the return of growth’. This may be unrealistic. Much more unrealistic, however, are their apparently low but constant oil demand growth forecasts, at price levels for world traded oil supplies of below $30/barrel in dollars of 2003 far into the future. Even today, we are close to exceeding the $30-$35/barrel ‘hump’.
For their 2020-25 forecasts and until very recently, the OECD IEA and US EIA simply key in a constant 1.8% annual growth rate for world oil demand and then project vast supply expansion from the Middle East in particular, but also elsewhere. By 2020-25, according to the IEA and EIA, the Middle East region could, or should be exporting about 45 Mbd, in order to balance out forecast world supply and demand needs. Including domestic oil needs of these exporters, their total production would have to exceed 53 Mbd – despite this being entirely and completely impossible! We can consider the highest-ever production of Iraq, at about 4 Mbd (with 3.5 Mbd exports) in 1978-80, and the very recent peak of Saudi production at around 9.5 Mbd.
Yet projected future oil demand requires heroic, impossible supply efforts – or concerted, transparent and automatically funded Multilateral Energy Transition decided by the world’s major oil producer, and oil importer countries. Without this, and relying on the capricious and irrational vagaries (called ‘exuberant’), adjustment to structural undersupply of oil, in a highly predictable near-term future, can almost certainly be taken to signal terminal economic crisis and geopolitical conflict.
The Liberal solution: Only recession can cut demand growth
Only intense economic, financial or monetary crises can in fact dent what is essentially inelastic oil demand generating high annual demand growth rates. An example is the 1997 Asian monetary crisis, which for one year brought the region’s oil demand growth to slightly below zero. In the OECD or richworld economies the 1973-74 oil shock saw a 295% nominal or before-inflation price rise for oil, but demand growth rates of beyond 7% per year for some OECD nations before the crisis only turned into declining consumption for around 15-18 months in most of these economies. By 1975-76 OECD country oil demand growth rates had recovered to as much as 3.5% and more each year. Following the 1979-81 oil shock, when oil prices reached levels that we will surely see again within a few years, if only market mechanisms set prices, there were declines in oil demand by the OECD nations for 3 straight years (1980-83). Oil substitution was given high political priority and prominence, but the real source of oil saving was intense economic recession. In total and through the 1980-83 period OECD reduction of oil demand only attained a cumulative 3-year total of about 9%, with a stepwise reduction in annual amounts economised, by the ‘good economic management’ of economy wide recession, the destruction of businesses, and mass unemployment.
The imminence of entry to a 1929-36 sequence of continual, unstoppable economic decline, and the more prosaic need of the Reagan administration to have their candidate re-elected, ended this flirt with 1930s-style depression. World oil demand ceased to fall from late 1983 and through 1984, with oil prices in 2003 dollars that were still far above USD 60 per barrel. In that year, the US economy attained its highest-ever economic growth in the entire 1945-2003 period, at about 7.5% expansion of real GDP. This is around 4 to 5 times economic growth rates in the G-8 nations today, with oil prices scarcely more than one-half the 1984 price in real terms! From the later 1980s, world oil demand growth increased in all regions, if at lower annual rates than before 1973 in the older industrial economies of the OECD, but at much faster rates in the dynamic Asia-Pacific economies. In the 12-year period since Gulf War-1, a war essentially for cheap oil, world oil demand has increased by nearly 13 Mbd, or about 25% more than the effective and real ultimate oil export capabilities of Saudi Arabia, the world’s biggest oil exporter. Using US EIA and OECD-IEA forecasts, world oil demand growth from 2003-10 will add about another 13 Mbd to world demand.
Price levels needed for Zero oil demand growth
The kind of economic shock needed to ensure first zero growth, and then continual decline in world oil demand, solely by the price mechanism and without extreme interest rates, is hard to imagine. We can, in 2008, easily conclude that oil prices well beyond USD 125/bbl are needed to spontaneously reduce oil demand – at the cost of the most severe economic recession since 1945, according to the IMF. To maintain continual, yearly declines in world oil demand no economic recovery could in theory be permitted. The recession would have to become a depression, and that would then have to become the ‘normal economic environment’. Unemployment rates, in any formerly rich country, would have to be in the 25%-40% range and be maintained at that level. Public financing of education, health, care of the aged, transport infrastructures and the military would be severely impacted, and very likely there would be civil unrest, riot and rebellion.
Those who draw up scenarios of either sudden cuts in world demand, or continual, year-on-year falls in demand by apparently ‘modest and reasonable’ amounts of say 1.5%-per-year, must understand that the world economy, society and political decisionmaking system is totally unprepared for such horse medicine. Without any prior warning nor international agreement, without a multilateral framework for Energy Transition, this Final Oil Shock adjustment to continuing demand decline could be brought about – but the consequences would almost certainly include civil war, and quickly lead to international conflict, possibly using nuclear weapons.
The Kyoto Treay - Failed adjustment
While the Kyoto Treaty mechanism laboriously seeks a regulatory framework for encouraging energy transition, and is ignored by the USA and inapplicable to more than 140 of the 180 countries that have ratified this process for action to limit inevitable climate change, the energy economic framework for adjustment entrained by rising oil prices will operate at all levels of the energy economy. In addition, the Kyoto process, being targeted for effective application from about 2012 (in theory from 2008-12), is unrelated to the shorter-term horizon that applies for Peak Oil, and to which adjustment should begin with the shortest possible delay.
In other words, any attempt at restoring, then maintaining low oil prices, other than by severe ‘liberal economic’ recession, from about 2010, will be doomed to failure because we as yet have no sure knowledge of firstly the market effects, then economic effects of oil prices after Peak Oil physically impacts world oil supply-demand balances. In ASPO, consensus opinion is that 2010 will almost surely be the ‘hinge date’ after which the so-called undulating plateau of current oil production and supply gives way to naked decline, especially of export supply.
After a long period of mostly low, but also high and volatile oil prices, we will experience a ‘quantum change’, stepwise leap in oil prices as in 1973-74 (that is a 295% increase in less than one year) with all that implies in terms of panic driven, ineffective or harmful responses to what, this time, will be permanent and physical shortage of oil. To be very sure, the 2008 peak price of around USD 145/bbl will be exceeded. Many years of potential adjustment through market driven plus incremental non-market multilateral mechanisms will have been lost if the ‘liberal non-alternative’ is allowed to continue operating. Investment opportunities in coordinated and planned energy saving, economy restructuring and new/renewable energy source development will have been squandered. Public knowledge, and social acceptance of obligatory but necessarily challenging adaptation and modification of established ways of life will be distorted, harmed or hindered.
In a situation of ‘laisser faire’ non response to perhaps the biggest change in world energy that will ever occur, there is little difficulty forecasting a repeat of the 1980-82 sequence in the world economy. At the time, interest rates were finally gouged to more than 20% base rates in most OECD countries, entraining a runaway process of inflation (due to high prices money rather high priced oil), stock market losses, business closures, reduction of investment, and spiraling employment. Unlike the 1980-82 sequence, however, there would be no return to cheap oil when the interest rate ‘brakes’ were let off, because of increasing physical oil shortage, which would maintain, and then increase oil prices in a permanently tight market. Intensifying recession would tip into economic depression. With a constantly hostile interest rate and business environment, economic players would be more than unlikely to spontaneously move toward restructuring their activity, plant and equipment, effectively aborting any rapid start of the energy transition process. Accepting and allowing oil prices that reflect the emerging reality of Peak Oil, conversely, would provide immediate and economy wide signals for restructuring and the first real moves towards energy transition.
Energy industry and Energy sector adjustment
To some extent the current ‘US natural gas cliff’ of flagging supply and stepwise increase in prices of natural gas in the USA, notably shifting considerable demand (already about 0.25 Mbd) to oil and increasing US oil imports, is a paradigm of inefficient, market-only ‘response’ to energy resource depletion. The US gas prospecting industry, downsized through years of very low gas prices, is unable to respond. US oil import increase at this time of tightening world oil supply-demand balances will itself and certainly increase oil price volatility, and only with time lead to sustained and progressive price rises. This in turn will send confused, even contradictory price signals to the energy industry and throughout the energy economy in the short-term.
The period of around 1978-82, in which oil prices attained about $100/barrel in 2003 dollars, saw a flurry of oil and gas prospecting activity, and a short turnaround in long-term oil reserve depletion profiles, both in the US and elsewhere. These very high prices were attained from previous price regimes around $40-$50/barrel. Conversely, price rises since 1999 from most recent lows of about $9.50/barrel (for some crudes in late 1998, in dollars of 1998), to around $30/barrel in late May 2003 have been erratic, strongly affected by political events in Iraq and Saudi Arabia, and have not led to any major upturn in prospecting, makeover activity or new production. To some extent this low level of response by the oil and gas industry is due to simple depletion, but is also due an increasingly unrealistic oil and gas pricing environment. Concerted international action to set both floor and ceiling prices for oil and gas, for set forward periods of time, would itself contribute to resolving the problem of an energy industry that is losing industrial capacity and strength every day in an increasing number of countries.
In part this is due to the political context of ‘unfettered markets’ subject to benign neglect, and the mirage of ‘vast’ oil production by the new Iraq. Under no circumstance can Iraq’s albeit large oil reserves – but currently small production capacity – prevent Peak Oil from happening. In the very short term of 2003-04 any export offer by the new Iraq will be small and by itself totally unable to compensate for declining supplies from other regions and provinces, given expected and likely world oil demand growth rates. The downward pressure on world oil prices due to expected and hoped-for supply from the new Iraq, however, will only serve to draw energy investment away from oil and gas activities in other regions and provinces, while maintaining unattractive investment returns in the still fledgling new and renewable energy sector.
That is, in other words, the world energy industry is hostage to a situation of cheap oil’s last fanfare in the Middle East, losing vital industrial capacity and downsizing at exactly that moment when it should be moving towards energy transition. Without forward development of new industrial capacity, both in fossil and non fossil fuels and energy sources, the period after Peak Oil promises to be chaotic. This again reinforces the need, first, for acceptance of Peak Oil’s reality and imminence, and the setting of international agreements for procedures to deal with it.
Conclusions
There is no difficulty, if we accept the reality of Peak Oil, in drawing up oil demand projections featuring annual cuts in consumption and ignoring any question of rises in the oil price. These however are sure and certain, and therefore should be anticipated and planned for. A sudden stepwise increase in oil prices to even the USD75-90/barrel range will, perhaps ironically, but almost certainly in fact yet again increase economic growth at the world level, leading to yet higher world oil demand, which will then reinforce price rises. This however will entrain an economic and then monetary and fiscal context where inflation will rapidly take off, responded to by defensive hikes of interest rates that trigger firstly economic recession and then deep and unyielding economic depression.
Due to Peak Oil, however, this deliberate recessionary, volatile and inefficient ‘management’ of the economy will certainly not bring back the ‘happy times’ of cheap oil, either for the OECD or other importers.
Much better, there should be ‘pre-transitional’ oil price rises to a high and stable price level, say USD 100-125/barrel, delivering the right ‘signals’ for development of alternate energy sources and systems, and enabling more time for market driven adjustment to start, and to develop. Oil supply and pricing should be taken out and away from the market, and controlled by a special UN-level entity, with permanent delegates from the largest oil exporter and oil importer countries.
This will of course need international agreement much like, but separate from the Kyoto process. While this of course is more than somewhat idealistic, such a mechanism could prevent runaway oil and energy price rises triggering inevitable economic depression, and prevent military ‘solutions’ to what is essentially a geological problem from becoming the nearly certain default reaction.
The international energy industry will itself be a key player in energy economic restructuring. At present the energy industry is a victim of erratic, even incoherent and antinomic policy and market frameworks, and lacks all bases of what can be called ‘critical forward vision’ at this moment in time. Providing a lead role to the energy industry, firstly through market signals, will be vital to any plan and program for energy transition. Recent trends show that economic and industrial downsizing – loss of capabilities – is accelerating in the industry and must be turned around.
The energy industry in the largest sense of the term – including the renewables, clean coal, conservation and energy saving through economy restructuring – is an essential partner for energy transition. At the latest, the transition away from oil and gas caused by physical depletion in the face of ever increasing demand will inevitably start within about 5 years. The fact of depletion will very likely have been signalled well before that time by uncontrollable oil price rises, if world oil supply and oil demand growth are only set by unfettered market play. It is important for the energy industry, consumers and political leaders to analyse, debate and set a realistic program for energy transition, and to engage a process for reducing energy demand in the economy and society while shifting to non fossil fuels in the most orderly possible way.
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