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Peak Oil and Capitalism

“Securing adequate oil supplies was … an important element in all the major wars of the twentieth century and in the United States' two most recent interventions in the Middle East.” (Matthew R. Simmons:Twilight in the Desert)

Oil is a bit like the dinosaurs: it was made millions of years ago and is not being made any more. Among the most useful of nature’s products it will continue to be essential to modern day life for some time to come. But it is finite and will one day run out. It could be about to reach its maximum rate of production, and barring new discoveries or improved recovery techniques, increasing demand will meet dwindling supplies – if it has not already done so. “Peak Oil” will have been reached.

The crude oil that is pumped out of the ground and which currently underpins large sections of the world economy was formed in two or three geological periods of intense global warming and not outside these. It’s a paradox that something formed in a period of global warming could now be contributing to a further period of global warming.

There are two main schools of thought regarding the future of oil production.

The optimists

First there are what might be called the optimists. They argue that while it is true that there are problems regarding the future of energy as a whole (and oil in particular) there are solutions that could be adopted. Anyone not adopting this point of view is labelled a doom-sayer or a Cassandra.

Faced with a predicted shortage the optimists suggest increasing the supply and/or decreasing the demand for, or reliance on, oil. They say that the claim that the world is ‘running out of oil’ has been heard before. True – this was a cry heard in the 1970s. They claim that there is more oil yet to be discovered and oil-importing economies should stop relying on oil fields in politically sensitive or unstable parts of the world by diversifying their sources.

Technological solutions such as increasing efficiency in use are also suggested. This is already in hand, though savings made in this way can be cancelled out by increases in demand. Increased efficiency in extraction has been implemented in the past but there is reason to think that all the wheels have by now been invented.

The shortfall between demand and production predicted by Peak Oil theorists has been met in recent years by supplies of hydrocarbons from ‘non-conventional’ sources such as shale formations and tar sands. However according to some these have only delayed the arrival of the point at which the production of oil reaches its historical maximum after which production will inevitably decline.

The development of these new sources was greeted with much hoopla and promises of lower petrol prices, and the Peak Oil debate was overtaken by other concerns such as climate change. For some time the optimists held the field.

The pessimists

The debate has been revived in the past two or three years with serious revisions of previous industry estimates of the amount of oil actually recoverable. US Federal energy authorities have, for example, downgraded the industry estimated potential of the massive Monterey Shale deposits from 13.7 billion barrels to a measly 600 million barrels – a reduction of over 90 per cent (Los Angeles Times 20 May 2014).

Writing in the journal Nature (4 December 2014) Mason Inman drew attention to President Obama's assurance of ‘... a supply of natural gas that can last America nearly 100 years.’ Inman considers such forecasts to be based on early, incomplete, and sometimes doubtful data. A careful examination of the assumptions behind such bullish forecasts suggest that they may be ‘overly optimistic’ and that the current boom is unlikely to last beyond 2040.

Also questioning such forecasts is a lengthy report from David Hughes of the Post Carbon Institute. He concludes that oil output from the two major US shale deposits – responsible for nearly two-thirds of such production – will likely peak some time this decade and then drop by 2040 to a fraction of today's totals far below the official US Department of Energy projections:

‘Although shale gas production will rise in the short term, until the 2020 time-frame, the DOE’s assumption that growth will continue to levels more than 100 per cent higher than today by 2040 is not supported by the data. An analysis of seven major shale gas plays comprising 88 per cent of DOE’s forecast production through 2040 suggests production rates will be about one-third of the DOE’s forecast in 2040 for these plays, and that production from these plays will peak as early as 2016’ (Drilling Deeper: A Reality Check on US Government Forecasts, Post Carbon Institute, 27 October 2014) [http://www.postcarbon.org/drilling-deeper/ ].

Geopolitics

The distribution of oil deposits across the globe is very uneven. Access to it by those who have little or none is hedged around by a number of political constraints. About fifty or so states have deposits capable of exploitation but of the vast bulk of the world's proven oil reserves, some two thirds is situated in Saudi Arabia and four of its Gulf neighbours. So there is also the problem of concentration, in a politically unstable part of the world.

But oil is not just any old commodity. Oil is different. It is a strategic commodity. Control over access to oil bears heavily on the survival of states as continuing and independent political entities and their economic well-being – i.e. their ability to continue making profits.

Several US Presidents from Franklin D Roosevelt in the 1940s through Jimmy Carter, and Bill Clinton to George W Bush have declared access to oil to be a matter of ‘vital national interest’ to the US. By vital national interest they mean interests they are prepared to advance and defend using deadly military force – as they did in Iraq. This is not just the Americans playing hardball. They are following the unavoidable logic of capitalist politics and class interests. And they are doing only what the British and others before them have done.

What confuses the picture at present is the low price of oil, due in part to the fracking bonanza and in part to Saudi Arabia dumping oil on the market in a bid to undercut Russian and Iranian profits. A low price means a withdrawal of investment in R&D and a lack of new field exploration, which can then exacerbate the appearance of an oil decline. In the long term though, ifsupplies of oil become increasingly tight then inevitably competition for the remaining supplies will become fiercer. The hunt for supplies across the world will be joined by those emerging capitalist economies now undergoing rapid industrialisation and economic growth and contributing to the demand for oil at a time when supplies may be going into long term decline.

In 1950 two thirds of the world’s oil came from what has been called ‘the north’. What’s left of the world’s oil is found almost exclusively in the ‘third’ word – the global ‘south’, not more than say a dozen countries if you include the Caspian Sea region. These countries are not yet fully developed capitalist political entities and are rent with factional and dynastic rivalry. They seldom have other sources of wealth, and internal and international competition over the ownership and control of an increasingly valuable resource, and over routes for pipelines to get it to its markets, is likely to intensify.

GWYNN