BP CEO: Oil markets will save us

The CEO of BP, Tony Hayward, has published, on the occasion of the publication of BP's statistical yearbook, an Op-Ed in the Financial Times with a pretty self-explicit title: Let the markets solve the energy crisis. But it's also very devious, as his ode to markets allows him to mix reasonable arguments with highly toxic ones, and it's going to be very hard to make the distinction that he is correct on some respects but not in others...

Basically his arguments boil down to 3 points: there is no speculation (prices are justified by fundamentals, markets work fine), renewable energy is not serious (too small, mostly), and there is no peak oil (plenty of reserves around). and of course, his solution is simple: oil majors are ready to invest and let market forces solve the supply problem, but political obstacles prevent them, and governments must therefore help by removing these.

What is true is that speculation is not to blame, and that there are political obstacles to investment today. The rest is not quite so true. And that mix, which I expect is deliberate, has one main subtext: "don't worry" (and don't try to move off oil).

OK, here's the text in full.

When I became BP chief executive just over a year ago, I warned that the supply and demand balance for energy was very tight. But, in common with most people, I never expected to see the oil price go quite as high, quite as rapidly, as it has in the past few months.

Ah, "most people." This could be seen as yet another indictment of the common wisdom of the "serious" people (I don't think he includes anybody else amongst "people") that pontificate day in and day out in newspapers, think tanks and industry fora and, somehow, still have more credibility than those that have forecast current events with a lot more success.

Of course, short term movements cannot be predicted easily, but long term trends, especially such momentous ones as the irresistible increase in oil prices over the past 5 years, can and have been announced by many commentators, which have been too easily dismissed.

While it's easy to crow now, a call for accountability of the pundits would still seem to be appropriate.

Unsurprisingly, with consumers and businesses everywhere facing much higher fuel costs, emotions are running high. I understand those feelings. Governments and the energy industry are urgently looking for solutions. But if we are to act sensibly, we must start with the facts. We must accept the world as it is, not as we hope for it to be.

In other words: "we know you're suffering, and are unhappy about it, but please be certain it's not our fault" [ED - sentence reworded to eliminate profanity]

On Wednesday, BP is launching the latest edition of the BP Statistical Review of World Energy. This is the 57th year of its existence and during that time the review has established a reputation as one of the most reliable sources for objective energy data worldwide. At times such as these it is a useful analytical tool for those both inside and outside the industry.

Yes, let's not mention that OPEC (and a few other) country reserves have not been independently verified for more than 20 years, and that BP uses official national data from these countries without questioning them. Let others quote them as authoritative, and let the lies be repeated and disseminated unquestioned.

(From an earlier Oil Drum story, using BP numbers from 2 years ago)

It also exposes some myths that need to be put to rest if we are to find the right solutions to big global problems such as energy security and climate change.

While it is welcome to see climate change mentioned, it is more interesting to note that the energy side of the equation is framed in terms of security and not in terms of scarcity. Hawyard will remain within that "safe" frame for the rest of the article.

The first myth is that high prices are caused by technical factors, such as speculation. While these factors may have an impact on the margins, the data clearly show that high prices are really caused by economic fundamentals.

Global energy demand growth in 2007 was above average for the fifth year in a row, driven by the fastest period of economic growth since the early 1970s. Demand growth is concentrated in those emerging nations that also subsidise fuel prices, such as China, India and - increasingly - the oil-producing nations themselves.

It is only natural that speculation would come near the top of issues touched upon by Hayward, given the cries we hear around the world, and while oil majors are not the main culprits (financiers enjoy that "honor"), they are not far behind. And of course, given that this is an issue where he is on strong ground (speculation is at best a distraction, at worse a scapegoat) he can score some easy points.

But he actually makes a convincing case, in line with what the IEA has stated yesterday (even if it seems to have been spinned very differently in most media outlets):

Yet energy supply has struggled to respond. Production by the Organisation of the Petroleum Exporting Countries fell by 350,000 barrels of oil a day last year. The production situation is even more challenging in the market-oriented nations of the Organisation for Economic Co-operation and Development, where many existing basins are maturing fast. In Britain, for instance, North Sea gas production recorded the world's lar-gest decline for the second year in a row, falling by 10 per cent in 2007. UK oil output rose very slightly, but this is a one-off, based on a single big new field. Production remains on a downward trend.

The last time oil prices surged to this kind of level, 30 years ago, new production from the North Sea helped bring prices down. This time, new OECD production will have to come from frontier provinces such as the Canadian oil sands, the Arctic and the deep waters of the Gulf of Mexico.

Another big impact on supply is Russia, where production has begun to decline. It is a little-known fact that, until now, the growing demand for oil from China and India in recent years has been met almost barrel for barrel by rising supply from Russia.

His diagnosis here is spot on, and it is very important that it be made by him (and the IEA) rather than only by pesky bloggers, and that it include a number of points that have yet to make it into the "common wisdom":

  • demand growth is still very strong, and it is not just coming from China, it is also increasingly coming from oil-producing countries themselves;

  • production is stagnating overall, and declining in a number of regions: OPEC (despite its apparently plentiful reserves, Russia and, more significantly, in regions that "we" control, like the North Sea and the US (no explanation given);

  • incremental production can only come from "frontier" areas, ie expensive and low EROEI (although Hayward does not touch that concept, of course). There is no sivler bullet or quick fix like Alaska and North Sea were 30 years ago.

But given the tone used, one can guess what the stage is for: the first two bits are in the "not our fault" category (nasty countries closed to us), and the last one is in the "hey look at what we can do" (we're hre to help). And that does not fail:

Access to resources for international oil companies such as BP remains very restricted. Resource nationalism is on the rise. That is important because it is the oil majors that have some of the best technology for bringing difficult resources on-stream.

which sets the stage for the bigger point:

Myth number two is that the world is running out of hydrocarbons. Not so. The world has ample resources, with more than 40 years of proven oil reserves, 60 years of natural gas and 130 years of coal. The problems in bringing on new production are not so much below ground as above it, and not geological but political.

The standard "we're not running out of oil, it's just those pesky governments blocking us" argument, ie the claim that this is just a temporary problem that has an easy fix if a few selfish bureaucrats/nationalists could only get out of the way. This is dangerous on two levels:

  • one is to think that political obstacles are minor, ie that it will be easy to force Russia or Saudi Arabia (or Venezuela or Iran or even US politicians) to open their door or the spigot. This perpetuates the narrative that other countries in the planet are here to provide us with the necessary goods or services, independently of their own priorities or needs; it conveys that their sovereignty is a fiction that we tolerate with just a bit too much patience, but that we could push out of the way if it really became necessary; more generally, it dismisses completely the notion that our economies are acutely vulnerable to political events in these places and that, even if oil were plentiful in the long term, such events can create a lot of pain and disrtutpion in the short term that we are not planning for;

  • it is of course more dangerous in that it hides the fact that there IS a long term problem; by focusing (in an artifically theatrical way) on short term issues, it prevents us from doing anything about the long term crisis - which is quite scary when you think that this is an industry where investment decisions commit us to infrastructure and patterns of activity for many decades.

Myth number three is that we can switch quickly to a low-carbon economy. While biofuels, wind and solar energy are growing rapidly, they comprise a tiny share - less than 2 per cent - of global energy production. Humankind remains dependent on fossil fuels and coal is the fastest-growing of all the main fuel types. Carbon emissions continue to rise. We clearly all need to work harder if we are to tackle the threat of climate change.

The usual silly argument that renewables are still small and therefore will remain so. We have not tried yet to make them big. To a large extent, renewables are still being developed against the common wisdom of the serious people and against ferocious lobbying by traditional sectors (both the coal and nuclear industry spend a lot of effort lobbying against wind) and prominent NIMBYs, and they have never been a priority of policy (there are policies in place, and they work, but they are still seen in Washington, Brussels and other capitals like London or Paris as something that you do to look green rather than because it makes sense). As I've argued many times, wind is cheap, understood, and able to provide a lot more of our energy than generally admitted, but that idea has yet to sink in, and Hayward's argument is typical of that.

Sure, coal is growing fast, but that's because policies push that way, and because policies that would make things different are dismissed and/or fought tooth and nail by industry.

So how are we to secure the energy needs of the world in the 21st century? The evidence is that where markets are allowed to operate, they do work. That is what the data in the review show. And that is the real source of hope for the future. Consumers in Europe and north America are already responding to high prices by moderating demand. They are also beginning to embrace energy efficiency. Where investment is allowed to take place, energy production responds positively. Last year, US oil and natural gas production increased - in the case of oil, for the first time since 1991.

Using the small drops in demand in the US and Europe ignores the fact noted earlier in the article, ie that demand growth is coming mostly from other countries. And it conveniently ignores the fact that the West is the only part of the world where demand could shrink (given that in many parts of the world, especially the big new consumers in Asia and oil-rich countries, energy is subsidized and consumers have yet to feel the prices hikes in full) - and it took a five-fold increase in oil prices to cut demand by a couple percent!

Pointing to a small increase in US production (why not repeat here the note and the similar hike in UK production last year?) suggests that oil production could be increased by significant amounts at home, with investment. but there are effectively no restraints on investment in the areas already opened to production, and as he noted above "the trend is downwards." Opening up new areas like ANWR or offshore  for drilling would certainly create a lot of profits for the oil industry in the short term, but would be highly unlikely to reverse the production decline. and the volumes at stake are insignificant on the global scale (total US reserves, including those in all the closed off areas, are currently equal to about one year of world consumption, or 5 years of US consumption).

But pointing that things are moving (or could move) in the right direction on both the demand and supply fronts suggests that, again, the oil crisis is temporary and easily fixable.

The conclusion is therefore simple. Producers and consumers should be encouraged to respond to the market's signals. High prices are saying that we need more investment - in energy efficiency, new production, new technology and new energy sources such as wind, solar and nuclear.

Huh? High prices are the signal. What more encouragement people need? Either they respond to the signal, or they don't. That's what markets are about, isn't it?

Of course, he wants more. The solution is always more, not less. Never. and somehow wind and solar deserve a line here, despite having been dismissed as irrelevant just a paragraph above. But it's so politically correct to mention them, alongside the things we really care about: more drilling (and more nuclear too).

In order for that to happen, businesses and governments must act together. Companies know that they need to invest more, which is why BP and its peers have been raising capital expenditure substantially. But governments must do their bit too, by removing the barriers to that investment, improving access to resources and modernising the tax structures we work in.

No mention, of course, that BP's investments have been going up because its costs have been goign up, rather than because it is exploring or developing more fields. No mention of the fact that, other than the bump from adding TNK production to its own production, BP's output has been declining over the past 5 years. No mention that majors barely control a few per cent of world oil reserves and have becoming increasingly irrelevant, despite the headlines and hate they generate with their huge profits.

And a conclusion that encapsulates the spirit of our times: there is no problem, however momentous, that cannot be resolved with lower taxes (I presume that's what he means by "modernising" tax structures, right?).

After 30 years of voodoo economics, we get this sad "all is well, we'll save you if you lower our taxes" gambit and it will be seen as the height of seriousness.

But maybe this is a good thing, because this is certainly not going to slow the relentless rise of oil prices, and its very real consequences on our economies. and maybe, maybe, at that point, our politicians, keen to save their sorry asses, will stop listening to "serious" people and their unctuous, don't-rock-the-boat talk, and will actually go for policies that work.

Well, I believe that markets will help to solve the problem, but government can help accelerate us towards a solution through the use of sound policy.

Here are a few ideas I proposed on my blog on immediate steps the presidential candidates could announce to reduce oil demand:


Basically, Obama and McCain should consider providing a hefty tax credit to replace oil heating systems (to reduce diesel demand), and they should also consider buying out old gas guzzling cars and crushing them.

These simple steps could quickly eliminate 500,000 bpd in demand. That won't solve the problem, but it's a concrete step in the right direction - efficiency.

I'd welcome comments on the proposals - while many have suggested raising gas taxes and other Pigovian solutions, I think the steps I've proposed might have a slightly better reception, since they don't involve "penalties".

Buying people gas guzzling cars might sound good but where is the money going to come from to pay for it all? There has to be a "penalty" for people who have been stupid enough to buy these monsters in the first place otherwise you are shifting the cost from the stupid to the broader taxpayer base and penalising everyone. Its a quaintly socialist idea that surely has no place in capitalist America , oh wait... farm subsidies have a similar ring to them so maybe it would get up.

The stupid need to be hurt or they won't learn the lesson.

Markets can solve the problem in some areas, if all things remain relatively equal to today. Yet I suspect that it's not going to unfold in such a simple way that will allow it. The roller coaster economic times are going to cause constant disequilibrium. Good luck finding stability other than at a much lower standard of living...

Here in Texas we have a program that lets you turn in a car for a dealership credit. Theoretically it can work if it's something that you apply to cars that are 10+ years old below a certain fuel efficiency. Our program has to do with emissions rather than fuel efficiency. However, few people have fuel efficient cars [in the US] because mainly the gas guzzlers have been selling for years.

Here in Houston I think we would need to replace 90% - 95% of the vehicles out of maybe 4-6 million. I can't imagine the government footing that kind of bill. Then consider that on a nationwide basis, the numbers get insane very quickly. We're talking multiple trillions to make some real progress. Not realistic. We need to change the way we live, travel, work, and play.

Many of the commercials now are touting 23mpg as "fuel efficient"... give me a break. I'm relatively happy with 32/28, but going forward we need 40-60 minimum. Allow people to get gas hogs but include a progressive luxury tax to kill the incentive to buy crap vehicles.

Suddenly my choice of a Corolla back in 01 seems very wise. We're a few years away from "every man for himself." The governments have passed the buck for too many election cycles.

Thanks for putting contributing a plan. I'm not smart enough to offer my own, but I did have a couple of musings on your proposals.

Well, I believe that markets will help to solve the problem, but government can help accelerate us towards a solution through the use of sound policy.

Our government come up with a sound policy? The only way this can happen is if this "sound policy" benefited the _________ (insert your favorite corporate lobby here) industry. If Boeing, GE, et al decided to get out of the weapons business and start building smart cars, it might garner support for your plan in Congress. Unless a majority of Americans pay attention to the political process and work to influence positive outcomes, nothing will change. Even if they do, they are fed so much misinformation that many (most) will support the wrong thing anyways.

From your blog:

First, eliminate the use of heating oil in American homes. Heating oil and diesel fuel are essentially the same product, so heating oil demand directly impacts the price of diesel and gasoline. Replacing oil heating with gas heating would replace demand for imported oil with demand for natural gas that is produced primarily in the US and Canada.

Natural gas prices have been rising faster than oil. Shifting demand from heating oil to natural gas is sure to drive the price of it even higher. Natural gas is needed to make fertilizers which are also experiencing dramatic up ticks in price. We can always carpool, ride bikes, drive slower, downsize vehicles, etc. but we're always going to need fertilizer unless there is some type of shift to less industrial farming and more permaculture. Either way, I doubt we'll be supporting 9 billion people in 2050 as is commonly forecasted. If we are, it will only be at disastrous cost to the ecosystem.

I know it's a tired cliche, but the thought of deck chairs on a sinking cruise liner come to mind...

I'd welcome comments on the proposals - while many have suggested raising gas taxes and other Pigovian solutions, I think the steps I've proposed might have a slightly better reception, since they don't involve "penalties".

The "carrot" only approach only reinforces the idea that BAU can continue ad infinitum. The first step to solving a crisis is admitting that one exists. We have not reached that point yet. I fear that once people start to grasp the seriousness of the situation, the sucking sound you hear will be the global economy going down the toilet.

Thanks for trying to make positive suggestions, we can use more of that around here. I hope my comments can help refine your proposals. Cheers.

Natural gas prices have been rising faster than oil.

It's not only that. If you map local natural gas availability against use of oil for heat in New England (where most of the oil heating occurs) you'll note that natural gas isn't even an option without a local NG infrastructure build out first. So what's going to happen in short order is this: Once heating oil passes about $5 a gallon (that is, about 40 cents from now) it will be more expensive in New England than passive electric heat (heat pumps not being efficient in New England's cold winters). Those who can least afford the oil will quickly switch to space heaters, not just to save money, but because electricity, unlike oil, is generally billed after you use it, not before.

There are also a lot of wood pellet systems - both stoves and furnaces - being installed in New England. Unfortunately, pellets are in large part a byproduct of lumber production. Lumber production is way down. There will be pellet shortages this winter, driving prices up. And pellet prices historically have risen to near-parity with oil. Regular wood stoves can be fed more cheaply, if you don't count the labor involved even in stacking wood and building the fire.

Still, there will be a large switch to electric heat. That will (1) fry the mains - most of New England is already close to electrical infrastructure capacity even at last year's loads; (2) start fires in badly-wired older houses; (3) cause the utilities to buy more power. As for the last, wholesale electricity prices are largely determined by the price of NG, since nationally many of the newest generators burn that. So this will in that indirect way be a move to NG, pushing its cost up more, pushing electricity's cost up more. If that goes up enough, those of us who can afford it in New England will fire up our oil furnaces again.

What we really need is massive investment in wind, nuclear and electrical infrastructure. Unfortunately there are too many retirees in New England who can't stand the sight of wind mills, and hippies who can't stand the thought of radiation.

Hi, I don't suppose that it will save your grid getting fried, but air heat pumps are now being built which can cope with New England Temperatures.
Here is a Canadian company:
Hallowell International: Technical Data

The Japanese, surprise surprise, are also moving fast on this with pumps using carbon dioxide:
Coming soon: ITOMIC Eco-cute heat pump - R744.com News

I believe that it may be some time before those are available in the States though.
If you think of getting one the guy to talk to is Here in Halifax - I think he recommends a Fuji model.

Hi Dave,

Just so they don't go moving the international boundary markers on our account, Hallowell is an American company based in Bangor, Maine. And you were close -- Fujitsu is the manufacturer of ductless heat pumps I consider to be among the very best in the industry.


Darn! You've uncovered our nefarious British Imperialist plot to 'readjust' the boundary!

Dup post

... heat pumps not being efficient in New England's cold winters...

Hi whit,

Can you elaborate on this point for me? I'm curious because I live in an area that is at least as cold if not colder than New England and my heat pump has slashed my heating costs by some 75 per cent.


Hi praveen,

A couple things I'll run past you, if I may. I suspect those of us who still heat with oil do so because we cannot be economically served by the natural gas network and it would seem unwise to invest large amounts of capital expanding this network if load densities cannot ensure a reasonable return on this investment. Secondly, with falling domestic production and increasing reliance on LNG imports at the end of the day are we any further ahead? Would it not be better to invest our capital in ways that help us reduce our energy demands rather than simply substituting one [foreign] fuel source for another?


How about we buy all the big SUV's and shiping them to Russia? They can afford them and the gas they need.

When he says 'modernizing tax structures', perhaps he means that if they invest their profits in solar and wind, the government won't tax them away as he expects them to if they don't.
Give him the benefit of the doubt. He's not a politician. He doesn't have to be an idiot.

I'm sure that they have the same opportunities and writeoffs as everyone else if they wanted to invest in renewables in a serious way. Waht he is really asking for is effectively a tax structure which will socialise the losses of exploration but privatise the profits of production. I don't think he is an idiot, he's a capitalist.

Well in the US, the laws providing the incentives for renewables have lapsed in part (or close to all) from what I understand about some legislation that got blocked recently. He won't have to worry about taxes here forever. When it gets bad enough we will nationalize the petrochem industry... we're running out of countries to invade.

“dangerous on two levels”? How about a third level, building up a case for using force to take over “our” oil supplies which reside in other countries?

I had the same feeling, Dad.

Surely the belief that the only thing standing between my family and a return to the prosperity of the good ole days when oil was plentiful is some "bad regime" headed by a dusky tyrant would provide a useful motivation for "regime change."

'Course it will be dressed up in the useful fluff, just to make us feel better about doing it.

So, yes, dangerous on that level.

Thanks, Jerome,

This is quite sad.

Will the FT publish a point-by-point rebuttal by you? I hope so.

re: "improving access to resources", says Mr. Hayward.

Q: Mr. Hayward: What happens to global industrial economy when the resources are no longer there to be "accessed"?

re: Just a minor point on your excellent commentary:

"it is of course more dangerous in that it hides the fact that there IS a long term problem; by focusing (in an artifically theatrical way) on short term issues, it prevents us from doing anything about the long term crisis"

I know what you mean about "short-term" v. "long-term", but I'm not so sure the issues are really "short term", in a sense.

The overall decline is here, and we all know the prognosis for the time frame means extreme difficulties in the near term.

Mr. Hayward's use of the "40 years of..." type of phrasing serves to direct the reader's attention to the idea that the *real* problem (according to him) is far off in the future - at least a generation or two away.

The use of numbers in this way, without explaining issues such as: 1)rates necessary for industrial economies to function; 2) the uneven receipt of supplies (ELM, along with the shrinking "food chain") - is misleading to the point of...I don't even know the word for it. "Criminality" is too mild.

Mr. Hayward:

The world *is* running out of hydrocarbons.

It has been running out for a hundred years.

And we're about to see what happens

when we cannot talk about

what is right before our eyes.

It amazes me why there is not real panic at the idea that in 40 years time the world will have actually run out of oil. I am just 40 years old and would like to think that I will still be here in 40 years time. The oil industry had been going full tilt for a good century before I was born but it could be completley finished in my lifetime!

I've just had a baby and he will grow up and be 40 just as the oil runs out. What will he do after that?

This was the point that most leapt out at me when I read the article - he is saying that 40 years worth of oil makes it no problem. I don't see it that way at all. 40 years is not that far off, and of course what he is NOT saying is that we will have plenty of oil for that period - i.e. more than the demand - so we must expect the shortfall to cause oil prices to reliably be at levels which cause the world economy significant problems throughout that period until it runs out altogether. I am very surprised that someone from one of the oil majors would admit that we have such a small amount of guaranteed supply for the future.

The reason why this doesn't scare anyone is that
1) it sounds like we can produce as much oil as today (or more) without any problems the next 40 years.
2) This was the same thing that was said in the late 1970s. That was 30 years ago. And we still have 40 years!

And it is assumed that in 40 years we'll still have 30-40 years left..

Cheers, Dom

Well, with improved recoveries, we have stretched the amount of oil we have available to us, even from existing fields. The problems with that are:

1: We have gotten very good at maintaining production from large existing fields. But when they go into decline, production drops like a stone, and:

2: We may be able to reopen previously depleted fields and get more oil from them. But peak oil is not as much about amount as it is rate. All these old fields won't produce fast enough to make a difference.


In a post yesterday, I thanked somebody for leading me to the following video;

Arithmetic, Population and Energy (Forgotten Fundamentals of the Emergy Crisis)

I hope this is not construed as having some sort of hidden agenda and I don't benefit in any way from pointing people to this video presentation again. Having said that, I think the professor puts the concept of perpetual exponential growth in entirely new light and illustrates clearly how impossible this is, when dealing with finite systems.

It has made the futility of the growth based economy abundantly clear to me and I cannot imagine that anybody could fail to see the points that are being made. They would have to be incredibly dense or incredibly biased (brainwashed). I would love to see Mr. Tony Hayward forced to watch this video every day for a week and then sent to the blackboard to write a hundred lines of "Perpetual exponential growth in a finite system is impossible".

Alan from the very finite Islands

Islandboy, Thanks for the link.

This presentation is remarkable. I class myself as numerate, but as you say it puts it in a new light. The bottle bacteria analogue puts the situation into context.
If you consider this, Hubbert could have been 50% out in his reserve assumptions and timewise it would make very little difference, which is infact proving to be the case.
If you saw Hayley Millar's recent programme about Scotland's oil, this presentation pinpoints all the problems she failed to address in the programme.
It is clear to me we won't address these problems because it is not politically acceptable.

Hi Alan,

It's a classic and important work. Thanks for bringing it up again.

Ah, if only the average person could grow his or her knowledge at 1% per year for 70 years.

(Dr. Bartlett again at his finest.)

At 25:00 minutes he explains the ANWR fallacy (look for where he finishes talking about the yeast in the petri dish and starts talking about the search for more petri dishes)


Thanks for another insightful analysis.
I especially enjoyed your previous "Anglo Disease" summary.

As for Mr. Hayward, I can't add much to what you have already said, but just the fact that the FT sees fit to publish this tripe--at this late stage--unchallenged, speaks volumes about the "serious people."
It gives me some idea of why people become so cynical, a la cryptogon.com, even if I don't want to go that road myself.
But yes, true to form, the underlying racism and imperial attitudes shine through brightly.
I think what Mr. British Petroleum is really saying is something along the lines of, "Forget about sovereignty and the planet's finite reality, just let us run the show and all will be fine."
And I am sure that his beloved market will provide a jolly fun ride over the next few years.
"Don't panic, Captain Mainwaring!"
- Lance-Corporal Jones


When Tony Hayward became Chief Executive, and his odious predecessor was displaced, I was quite pleased. I thought that we now have a serious guy, a geologist to boot, as head of this gigantic company.

I was very disappointed by this article when I read it in the printed FT. It was clear that, perhaps because of the TNK-BP wrestling match, he was out to emphasize his pro-market credentials.

The part that really put the nail into my opinion of him was

Last year, US oil and natural gas production increased – in the case of oil, for the first time since 1991.

To most uninformed readers that would suggest that the economists' supply-demand curve is working, at last. Some readers may even have been fooled into believing that US oil supply went back to where it was in 1991. I mean, most people who read the FT have little time to analyse the structure of each sentence.

It was an attempt to muddy the waters - no more and no less

Don't be too hard on the FT over this - they were after all just printing what he wrote as an opinion piece. Personally I find that of all the UK papers, broadsheet or tabloid, the FT is by far the most politically neutral and objective. They alone seem to try to achieve good journalistic standards. You would expect the paper to come solidly from the right wing capitalist angle since it is a financially oriented paper, but this isn't the case at all. It really does acknowledge and reflect the importance of the stability and interests of society.


Sorry if I was misunderstood.

I looked twice through my piece and did not see where I may have criticized the FT. BTW, I have read around half of all FT's since 1973. I learnt a lot, but it has not made me rich.

Jerome, you say,

"And that mix, which I expect is deliberate, has one main subtext: "don't worry" (and don't try to move off oil)."

I have been trying to tell the folks on U.S. TOD exactly that for ages.

Now "Peak Oil" is everywhere. The mainstream media has done what it always does, and moved to what it sees as the story that will sell, and that story is catastrophe, failure, breakdown, and complete hysteria. What people forget about the media is that it really is unbiased and completely amoral. It does not care about which version of events is "true" or correct, it cares about which one will sell. The version of events that seems to have the most drama, that seems to have the most potential for future growth into a full blown movement is the one that will be first co-opted and then pushed outward in a wave to the public as a "movement". Every "movement" since WWII has been peddled just this way, from the hippies to the Sexual Revolution to the Reagan Revolution.

BP knows, as do most oil companies, that they have been cast as the villian in this drama. The largest demographic in the Western world is the baby boomers, and they have resented, distrusted and sometimes even hated the oil companies since the 1960's. Environmental issues alone were basis enough to despise the oil companies in the mind of the boomers, but issues of business practices, pricing, corruption of governments around the world, and outright arrogance only fueled the resentment of the oil companies in the minds of millions.

But, everyone still needs oil. The oil companies know this, and remind us of it everyday, everyday, every damm day, they rub it in, the remind us of it, they propagandize the point until it is like a water torture...you may hate us, but you need the oil, you may hate us, but you need the oil, you must have transportation and airliners and trucks, in the end, YOU WILL PUT UP WITH WHATEVER WE DECIDE YOU WILL.

A half century of this type of servitude, this type of degradation has created a generation desperate for freedom. Much of the peak oil "catastrophist" dream is created by the burning hatred of the oil companies. Many fantasize about the coming collapse, in which millions will die, almost all of what it has taken centuries to build will be destroyed or will simply fall into dis-repair and rot away, and we will live a more primitive life. What will be the reward? No one who describes these catastrophist scenarios expects longer lives, no one expects better medicine, no one expects greater freedom or comfort. What would be the reward for pushing the catastrophist dream? Simple: In the mind fo those who hate the oil companies, it is worth the horrific catastrophe if afterward WE WOULD FINALLY BE FREE OF OIL AND THE BASTARDS WHO PEDDLE IT.

There may be, as the doomers and oil companies seem to agree, NO scalable and workable substitute for oil. The oil companies tell us over and over in a hundred different ways that only oil can act as the fuel for the world, there simply is no choice.

But the one constant in the world is change. I do not have to tell you Mr. Paris, that technology is constantly changing and improving, that alternatives once dismissed as "pie in the sky" is now on the edge of financial viability.

Your observation was very astute:
"To a large extent, renewables are still being developed against the common wisdom of the serious people and against ferocious lobbying by traditional sectors (both the coal and nuclear industry spend a lot of effort lobbying against wind) and prominent NIMBYs, and they have never been a priority of policy (there are policies in place, and they work, but they are still seen in Washington, Brussels and other capitals like London or Paris as something that you do to look green rather than because it makes sense).

The Atlantic Monthly Magazine has a fascinating article on the Chevy Volt plug hybrid concept car:

The Atlantic article describes the enormity of the gamble by General Motors in the attempt to build the plug hybrid Chevy Volt, the sheer "Manhattan Project" nature of the time scale they have set for themselves (building and testing components in a month that are normally built in over a year), and enormous risks involved in the whole project. Why would GM tie it's fate to such a risky bet?

The goal set by GM is much more grand and visionary than most people realize:
"Its target range on a single charge increased from “at least” 10 miles to 40—the outer limit of what seemed possible. Not a few outsiders think this decision was misguided; a 20-mile battery, say, would still allow many commuters to drive gas-free most days, and it would be easier and cheaper to build. But Lauckner, always pushing, insisted on a car that the public would perceive not just as saving gasoline (that was Prius territory) but as replacing gasoline. The Volt, as the iCar was eventually renamed, had to be perceived as severing the umbilical cord between the car and the gas pump, and nothing less than the longest feasible gas-free range, he believed, would accomplish that."

With General Motors now vowing to break the automobile's umbilical cord to oil, Toyota now promising a lithium ion plug hybrid to be ready to compete with the coming GM wondercar by 2010, the two largest automobile companies in the world are betting against oil.
The smaller auto companies around the world will be forced to follow. They cannot risk letting the two giants succeed while making no advances themselves on grid based transportation, for there would be no hope of catching up later.

The oil companies have only one weapon left, but it is a powerful one (some would say the most powerful one if handled skillfully) and that is the word. The propaganda tool is being used by experts in the defense of an industry that knows it is entering it's twilight period. Despite gains in efficiencies which would have seemed like science fiction only 10 years ago by battery devleopers, solar cell developers and wind turbine developers, the renewables are dismissed over and over as "marginal players" which will have no real impact in our lifetime. No real evidence is ever given to support these claims, only the power of repetition. If you say it often enough, it must be true.

The newest tool of course is the terror of peak oil by the masses. The core group of long time peak believers were not easy to drive into panic because so many of them dreamed of the catastrophe. They took a similiar line to the pre-WWII architecture critics, who dreamed of the coming war as a way to clean out the old decadent architecture and replace it with the modern. The core peakers often consisted of many who had hated the modern world on purely philosophical grounds, and hated the oil companies even more. When the oil companies said "without us you will revert to pre-industrial primitivism" the core doomers said, "YES! Bring it on!"

But the public at large are terrified of peak. The oil companies can scare them into voting for opeing up Alaskan wildlife recerves, the coasts, the mountains, and maybe even building nukes in the tar sands and the oil shales to try to extract oil. In other words, anything to get the oil.

So, everyone is on the same page. The oil companies are preaching catastrophe unless they get what they want, the financial community is using as grounds to declare force majure and downgrade everyone to sub prime so as to charge them blood sucking rates, and the press is preaching blood in the streets while the Generals are looking at it as a way to get more money to "police" the Persian Gulf. Call it the 2000's version of
"How I Learned To Stop Worrying And Love The Peak"

So what story is being missed in all of this wild hysteria?
The labs. The shops. The technological march. Of course those who pray for the catastrophe laugh at technology, ridicule those who even mention it (ironic given that without technology there would be no need for oil, so how can technology not have a deciding effect on the oil situation? But tautological argument is part of the propaganda tool chest).

The shops and labs are boring. The nerds and dweebs hang out there. The press is fascinated by howls of fear, threats of doom, the over the top lingo of the fear mongers and the virulently anti middle class diatribes of a James Kunstler. The panic mongering, fueled by the oil companies, the press and the financial community, and aided by those who dream of the collapse will only get louder and wilder with each passing day. The "real" story, the story that matters for the long haul will be buried and only a handful will profit by knowing it, because it is actually a very boring little event in the grand scheme of things: Humankind spent over a century burning oil for growth. The burning of oil became more trouble than it was worth and created more problems than it solved. Humankind began to move away from oil, just as it had moved away from wood and peat and whale oil and coal in prior years. After some hysteria and fear, the propagandists of fear were virtually forgotten. The oil producers finally diversified, realising that the age of oil was passing by. Those who were so terrified in thier youth and middle age grew old and died. Some cost themselves the opportunity to retire prosperous by selling out their investments in the panic and laughing at the coming alternative industries. A few historians remember what all the fuss was about.


Rich nations have the ability and the opportunity to use technology to create a viable post-cheap-energy future. But many poor importing nations with large populations relative to their available resources do face disaster because the era of super-cheap, abundant fossil energy is coming to an end.

So there will be progress and catastrophe. I drive my Volt. They starve. Recognising the problem is NOT the same as saying 'Bring it on'.

Enquiring minds may wish to read Saving Science on The Archdruid Report.

Don't remind me. Here in Jamaica it is easy to get depressed just thinking about it. From the CIA factbook on Jamaica

CIA - The World Factbook -- Jamaica

The Jamaican economy is heavily dependent on services, which now account for more than 60% of GDP. The country continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 20% of GDP and are equivalent to tourism revenues. Jamaica's economy, already saddled with a record of sluggish growth, will suffer an economic setback from damages caused by Hurricane Dean in August 2007. The economy faces serious long-term problems: high but declining interest rates, increased foreign competition, exchange rate instability, a sizable merchandise trade deficit, large-scale unemployment and underemployment, and a debt-to-GDP ratio of 135%. Jamaica's onerous debt burden - the fourth highest per capita - is the result of government bailouts to ailing sectors of the economy, most notably the financial sector in the mid-to-late 1990s. Inflation also has declined, standing at about 7% at the end of 2007. High unemployment exacerbates the serious crime problem, including gang violence that is fueled by the drug trade. The GOLDING administration faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments while simultaneously attacking a serious and growing crime problem that is hampering economic growth.

Hows that for a basket case? On the other hand we don't have winters and we got loads of sunshine virtually all year round!

Here's hoping that tourism, bauxite and remittances don't get hammered and that agriculture picks up ;-)

Alan from the Islands

Wow....it's a wonder you didn't drown in the vat with the amount of venom you must have swallowed.

Sure, technology could save us.

But your point of view doesn't include the RISK that stochastic effects could remove alternatives faster than they can be meaningfully exploited.

It's this RISK that life as we know it will become somewhat nastier, more brutish and shorter that keeps me awake at night ;)

Some of the brightest people I know (PhDs) havn't examined the issue in depth and assume this energy crisis will resemble all the others: land, wood, coal, whales, etc., where solutions were reasonably quickly found and exploited.

I guess the chances of 'TEOTWAWKI' to be between 1/30 and 1/5 this year, rising slowly as time goes by. Though having said that, so far this year events have disproved my most optimistic assumptions...

I'm all for alternatives and renewables, it's just that I no longer trust anyone to make it happen. If renewables are readily employable we would have done it by now. Hydro-electric and near surface geo-thermal power has been used for many years and the principles are well understood. Solar, wind, tidal and other ocean technologies are yet to reach critical mass and your somewhat vituperous optimism of the seething army of engineers beavering away on these technologies is yet to be proven.

Giving a mouthful of venom to peak-oilers who happen to be serious students of the phenomenon, many of whom have been, or still are, employed in the oil-industry, was just weird. You seem to think that business as usual will continue non-interuptus. Sorry, have you seen the truckers and fishermen protests yet? Have you seen teh skyrocketing price of food and the shortages it is causing? Have you seen the lay offs in the airline industry? Whether we are transitioning to some other energy or just starting the ultimate powerdown, who really knows. Much of what is written on TOD is speculation and trying to make sense of an uncertain future. But to draw a straight line from the peak-oil powerdown camp to being motivated only by their hatred of oil companies is ridiculous.

I really don't care if you are fincially committed to some renewables company or technology. If you are teh Bill Gates of renewables then good luck to you, go for it. But save your venom for overcoming the obstacles that are in the way.


Great post and thank you for presenting a plausible scenario.
It is indeed quite possible that twenty years from now we will look back and wonder what the fuss was all about.

My big concern, however, is that this may be short circuited by war in the meantime.

If Iran is attacked and a third of the world's oil is cut off overnight then it's game over and the doomers will be right.

Otherwise I believe we have at best a long hard depression facing us with a gradual climb out of it into a renewable world. Then we will have to deal with global warming.

What people forget about the media is that it really is unbiased and completely amoral. It does not care about which version of events is "true" or correct, it cares about which one will sell.

The two statements are contradictory.  Bias toward sensationalism is still bias.

"Why would GM tie its fate to such a risky bet ?"
Because GM (and Ford) is bankrupt. The fall in auto
sales, and particularly the SUV, is pushing GM
and Ford into Ch 11. The Volt is the last hope.
It's very likely to fail - just too many things
can go wrong - but it gives the company another
2-3 years, and of course there'll be more excuses
after that....

GM cars aren't the worst. Recently rented a Dodge Caliber. That's a car with just about the same inside capacity as the Honda Fit (aka Jazz). But the comparison between them is night and day. The Caliber is heavier, sits higher, has tiny windows hard for the driver to see out, has a sluggish engine and a transmission that behaves bizarrely. Plus it's less-configurable for cargo, and the mileage ain't great. Honda, meanwhile - the one major car maker that never went big - is thriving. And their engineering is brilliant. The small GM stuff isn't nearly as bad as Chrysler's garbage, but it's not nearly as good as the Hondas either. And 2009 will see a hybrid Fit (or equivalent form factor) out of Honda. Once you have that, a plug-in hybrid isn't a big step. Once you have that - well, that's the obvious place to be.

Another big impact on supply is Russia, where production has begun to decline. . . Myth number two is that the world is running out of hydrocarbons

What I found interesting is that the decline in Russian production is consistent with what our logistic (Hubbert Linearization) model suggested, see link below. The all time Russian peak was back in the Eighties, and the recent rebound in production was largely just making up for what was not produced after the fall of the Soviet Union. In other words, the renewed decline in Russian production is consistent with our Peak Oil models, but then Hayward goes on to, in effect, argue against Peak Oil.

In Defense of the Hubbert Linearization Method (June, 2007)

The predicted production curve in red was generated using production data only through 1984 (data points shown in green):

But never fear, perhaps major oil companies can do with world production what they did with Texas & North Sea production, two regions developed by private companies, using the best available technology, with virtually no restrictions on drilling. The Texas & North Sea peaks lined up with each other, different vertical scales:


Thanks for your continuing presence here and, hopefully, elsewhere. A voice of sanity and reason in a world long gone insane and becoming more so. Also, please add that Russia also has not shown an interest in the environmental constraints that the U.S. has and is plunging full steam ahead beyond their peak without all those pesky environmentalists.

I guess BP thinks that we could solve all our problems if we were just like Russia and didn't give a damn about the planet.

Not to mention what a great environmental record Texas has had, I'm sure. No offense. Some of my best friends are Texans. Or so I think.

We cannot solve our "problem" but we can redefine it.

I think Mr. Hayward demonstrates once again that the IOCs are their own worst enemies. Their real problem is that they don't have to SELL their product like the rest of us do. Therefore, those people are utterly lacking in salesmanship and PR skills. They couldn't sell water in the desert. Give them a gun and they shoot their toes off. That Hayward can't see the transparency of his argument, nor perceive that everyone else can see it, speaks volumes about oil execs.

When all you have is a hammer, everything looks like a nail. Regardless of the problem, lower taxes are always, of course, the answer. But, to what extent is the U.S. deficit driving a lower value of the dollar which partly drives up oil prices? Isn't it interesting that those who claim to believe in the market also appear to believe in the free lunch. As if lower taxes have no consequences without a corresponding decrease in expenditures.

Even if we could make a dent in our oil supply problem with no constraints on drilling, when would this nirvahna of plentiful supply occur? Certainly not this year or the next or maybe within this decade. BP also fails to mention all the permits that have been granted to to the oil and gas industry during Bush's tenure and how many of these have not been exploited to solve our problems with supply.

And after we have fully exploited all that is exploitable, what then? Perhaps we should be thankful that there have been some constraints in the U.S. Without any constraints, how much of that oil would have been already been burned and not in the ground? There are hints that SA is waking up and cutting back on production in part to leave something for future generations. Perhaps this is just an excuse but nevertheless, it makes sense as that oil in the ground will just become more valuable. Same thing applies to resources still existing elsewhere as in the U.S.

If there is no problem, why is it that oil is becoming more difficult and expensive to find. Government constraints or not, that fact will cause high oil and gas prices in the future even if the market is completely liberalized.

BP has been caught with their pants down as have most of the governments of the world, especially the U.S. The time to act, unfortunately, was 35 years ago. There is no policy that will address what people really care about in the short term, high gas prices. Our children may have a chance, but only if we act now and make the necessary investments for a renewable future. Spending all our capital on a crash program to get more supply of fossil fuels will be swamped by increasing demand, especially from Chindia.

In the mean time, people will just have to suck it up and tighten their belts and do whatever they can to conserve. Those who choose to ignore what is happening will just have to pay the price. I still see all those gas guzzlers on the road up here in discretionary driving land (a vacation area). Lots of luck to them as gas is $4.34 up here in the mountains.

"So how are we to secure the energy needs of the world in the 21st century? The evidence is that where markets are allowed to operate, they do work"

A millions will starve, but for "us" the markets work.

Just like leaving health care to the market works so damn well.

Is there any rationale for the continued existence of the IOCs? Do they really have better technology than Schlumberbger and Apache? I say good riddance, and the sooner the better.

And, Sweet Jebus, I wish people would stop personifying markets. Markets don't solve problems. Market ARE. They match buyers & sellers at a price both agree on. Markets will continue to exist (unless society breaks down into complete anarchy, and even then there will be markets of a source). They will continue to match buyers & sellers. It is just that the price will be ever higher, and the buyers & sellers will be ever fewer.

Markets allocate resources according to one, and only one, factor: wealth. Markets will continue to function by progressively squeezing out buyers starting at the bottom of the food chain and working their way up. Realistically, we need some mechanism to allocate energy besides money. Money only works as an equitable distributino mechanism when infinitely elastic supply can drive prices down to the cost of production. It will be a disaster when an essential resource for life becomes genuinely scarce. Eventually, the social contract will go out the window and society will break down. IMO, we will eventually need to get oil out of the open markets and into some more equitable allocation mechanism. Of course, the BPs, the wealthy, and TPTB will fight that tooth & nail. Even worse, it goes against the world'd dominant religion: neoliberal capitalism.

The markets have their place but as you have indicated are just an efficient way of allocating resources. They have nothing to do with issues of equity. And, as you have indicated, are not a good tool for allocation of a genuinely declining resource which does not respond well to changes in prices.

The first thing,though, that must be recognized, is that oil's decline can only be managed, not fixed. The market can be a useful tool in this decline but only in the context of a rationing system which takes into account equity issues. A rationing system which permits the poor or frugal to sell their virtual oil coupons would provide some relief to the poor and would reward those who have taken steps to consume less either through efficiency or conservation.

The market is a useful tool for some things depending upon the context. But the market or for that matter capitalism will not "solve" the oil problem if the proposed solution is more long term supply.

Protests have erupted around the world to demand that government "do something" to make the problem of higher prices go away. Perhaps some of that protest should be directed at those who continue to consume mass quantities in their SUVs.

Capitalism is fine and dandy as long as it is given a short leash.


Rationing should be used in time of extreme crisis and only for short amounts of time until the market is given a chance to calm down and regroup. Rationing in the long term misallocates resources horribly and leads to even more shortages because people come to expect "their amount".

The market allocates things 99% of the time the way things should be allocated and should be allowed to work in almost all cases. The world is better off because of that.

[experts] that pontificate day in and day out in newspapers, think tanks and industry fora and, somehow, still have more credibility than those that have forecast current events with a lot more success

I am one of the people who "have forecast current events with a lot more success." This attribution of importance to mediocre people irritates me from the moment I get out of bed in the morning until I go to sleep at night.

It's time to take the argument directly to the public and bypass the "experts" altogether. The "market" will not solve the present and enduring crisis, but my guess is that BP's chief will not be homeless like so many others.

The indispensable skill is spotting bullshit, but very few have this ability.

-- Dave

Bullshit comes in many flavors. Here in Vermont in the last week the head of one of our larger heating oil companies joined our one Congressman for a conference call with constituents. The local oil man assured callers - and readers of the papers covering the call - that "$2 of every gallon is due to speculators." Then a few days later his brother Matt - head of the state fuel dealers association - showed up at the Lt. Gov's news conference, called to declare a heating fuels emergency for next winter. Matt assured the public, via the unquestioning press, that it's all a speculative bubble that "has nothing to do with supply and demand." We should, he urged, expect to see oil prices drop "even more quickly than they went up." A month ago the Congressman even had brother Sean up to Washington to lecture a Congressional committee on how curbing the speculators would solve the whole problem.

I've written the Congressman, and one of the papers that printed Matt's drivel. But the "it's all speculation" argument works incredibly well to divert us from the crisis - whether in favor of wishful thinking (I'll grant our oil dealers believe themselves - if Sean should see this: No hard feelings. I'll still buy your oil), or a desire to keep the customers from moving to better fuels.

Wow, RC, I thought I was cynical. It seems to me that you ascribe evil motives to everyone else but your own viewpoint. While I agree that there are plenty of doomers who hate modern society, you'd do well to realize that nearly everyone has some aspect of modern life that they don't like, but that doesn't mean they wish to see it end.

Secondly, how do you relate BP's endless "alternatives" advertising (Beyond Oil) that has been going on for years to your assertion that they want to make us all slaves to oil?

Everyone in business struggles to perpetuate that business, even when they know its failing. To suggest that oil companies should just curl up and die is absurd. Rest assured that whatever replaces oil will end up taking its place as the target of hatred. It wasn't so long ago that people used to hate electric utilities and blamed them as the root of all evil. Then came the telephone companies, then Microsoft. And on and on.

People always seek scapegoats for their own inadequacies. Without a boogyman to blame we'd have to look in the mirror. If we are slaves to anything, it is our own sense of inadequacy. Time to grow up a little.

research24 asks,
Secondly, how do you relate BP's endless "alternatives" advertising (Beyond Oil) that has been going on for years to your assertion that they want to make us all slaves to oil?

Jerome's great line,
"something that you do to look green rather than because it makes sense)."

That about sums it up.

research24 says, "you ascribe evil motives" to everyone...no not "evil motives", human motives. If I were in the position of the oil companies, or if I were in the position of someone who took a militant view on radical environmentalism or anti technology, I would behave in exactly the same way. Evil or good would be for the judge to decide.


Thanks Jerome.

Behind everything Hayward says is the implicit “trust us, the market will meet demand”. If higher prices are required for the market to function then the market is being used as a rationing mechanism. Hayward’s real message is let the market do the allocating. Supply will satisfy demand (implicit but not stated outright is this will occur at a certain price). The very last subject that the oil majors want to talk about is “scarcity” because this would be an open invitation for Governments to meddle in the allocation process. With markets allocating, the majors reap the rewards of higher prices. I very much doubt that this would continue if governments got involved in the allocation process.

Hayward may talk about 40 years out but management’s horizon to cash out is most probably less than 5-6 years. I deliberately left out investors because they will be left holding deflated shares once Government gets involved in the allocation process.

I would not be surprise if EXXON’s decision to sell some service stations was the start of a program to gradually withdrawing from direct contact with the consumer, after all who wants to be bearer of bad news. When the oil industry characterizes Peak Oil as running out of oil, Peakist should emphasize it is about ever increasing scarcity and higher prices. We must explain to most consumers that the first signs of scarcity are higher prices, closing of gas stations followed by isolated shortages and product imbalances. This they can follow since most people are aware that as gas stations have closed across the country, fuel prices have increased. Furthermore they now drive further to obtain their higher price gasoline.

People live in the present so the problem of peak oil must be presented in a context that is more immediate and easier for them to follow.


Good article, Jerome, but I have some doubts about this statement:

Sure, coal is growing fast, but that's because policies push that way, and because policies that would make things different are dismissed and/or fought tooth and nail by industry.

Do you really believe that China's rapid increase in coal fired generation is simply driven by coal industry lobbying? It is one thing to add wind generation to an existing mix of coal/natural gas/nuclear/hydro and another thing use it to expand base load and peak load capability. Wind's intermittency provides barriers to achieving either of these goals.

(Flame suit on) There is no global shortage of energy and there will never be one as long as the sun shines see;

Solar energy reaching the earth's surface (left) greatly exceeds both total wind energy (center) and global energy consumption (right), although only a small portion of each is recoverable. (original source Wikipedia)"


So I would concur with those who say a major part of the problem is that, our lazy arses have gotten used to this bonanza of millions of years of stored sunshine that we have been sucking up out of the earth and have not been bothered to look at anything else. There's another way that the challenges ahead can be framed.

There are parts of the world which get rather a lot of solar energy all year round, the tropics, where the weather is hot and often humid and the heat can get uncomfortable or even dangerous. There are other parts of the world that get little or no sunshine for parts of the year and people do live in smoe of these places (eg above the 60th parallel) where in winter, the cold will kill you if you do not have an alternative source of energy to help you stay warm.

Energy being transient in nature is not easily transported between these two extremes of climate. Oh, how we wish we could just put it in a bottle when we have too much and sell it too someone who has too little or save it up to use it when we need it. That is the technological challenge that oil has allowed us to ignore. You could even say that the world did just that for us in the form of FF. If we were find ways of redistributing the solar energy that reaches the earth in the same way that FF have allowed us to then the remaining problems would be political.

Most of the population of the developed world lives in temperate climates that have a disproportionate need for energy in the winter. It is the marginalized people of the developing and underdeveloped world that receive the most solar energy. Maybe you could say the developed world has developed out of necessity and that the people in the tropics never HAD to develop as a means of survival. Will the developed world be happy ro share some of their wealth in return for energy from the tropics. From the sound of it, they aren't very happy to share it in return for energy from the ME.

Last year October I was in the UK. I was daydreaming one day and thought, what a different world this woul be if we could capture sunlight in the tropics and ship it north in the winter. I wondered how we might do that and came up with sugar cane ethanol, biodiesel from palm oil, jatropha, algae etc., hell, if we could build good enough batteries we could charge them with solar PV and solar thermal and then sail them north to the cold shivering masses in the north.

I then thought about the history of my island nation and how tropical plantation used to be the source of sugar for Europe. How ironic is it that, somehow we may be heading back to something like that. Difference is, the tropics have largely been decolonized. Are we likely to see a recolonization of the tropics? This is gonna be interesting.(/Flame suit on)

Alan from the tropical Islands

What is needed is a serious analysis of the infrastructure needed to capture the solar or geothermal energy. Iceland is a volcanic island so they have abundant geothermal energy but I do not see this being the case for most inhabited areas. The problem is that of intensity, energy recoverable per acre. The intensity problem applies to solar as well but I don't understand why there is lack of serious effort to develop it. For example, if every house roof in a typical North American city (dominated by residential houses) was covered with solar panels, how much electricity would that produce and how much would it cost to install the panels. If this was able to replace even 30% of the daytime electricity consumption wouldn't there be programs to start tapping this alternative energy source? Here in Ontario we spent 14 billion 1980s dollars (probably about 30 billion today) to build a single nuclear power plant. Wouldn't spending a fraction of such money on panels and distributing them to hundreds of thousands of users make much more sense? What is the problem that is holding this back? With massive volumes suppose the price was around $10,000 per house, then for $10 billion a total of one million installations could be done. Suppose they were capable of 5 kW so the total peak capacity would be 5000 MW. The Darlington power station produces 3524 MW. Further assuming that only 20% of peak solar panel capacity can be treated as the realistic output per day, we still get about 29% of the nuclear plant production for roughly the same price per megawatt as the plant. No real estate is wasted and people can feed the grid during the day when electricity is at peak production and demand.

At the moment we can't build the solar for anything like that cost, although it is dropping rapidly. You would also need to budget for inverters, storage back up and so on.
You might be talking about $40k per house, not $10
Costs are dropping rapidly, so let;s call it $20k.
The real killer is reduced power in the winter though, as you might get an actual output of around 300watts per average hour in the midwinter, you can allow a bit more as you don't need much at night, but your expenditure of $20bn compares to an average hourly output of over 3kw for the nuclear station. Even supposing that it cost $20 bn to build the (obviously twin) reactor set up, when you need it most you are getting 10 times or so as much power for your money from the nuclear set-up.
Solar power is great, but initially it will work well where people need it in hot climates for air conditioning, not for us in the north!
Of the renewables, wind or biomass do a lot better at that latitude.

Thanks Dave, That is exactly what my post was saying. Solar is a no brainer at lower latitudes. Problem being that, apart from a few exceptions, there are not that many countries in the lower latitudes than can afford 20k per household, much less 40k.

What dives me nuts, is seeing a brand new 4.7l V8 Toyota Tundra in my "poor" country, knowing that the owner could easily afford to go off-grid with solar PV but, has been listening to the Tony Haywards of the world. He might also have his head way too far up his @$$. How can we get these boneheads to wake up and smell the coffee if the current high oil prices can't do it. ARGHHH!!Time to go and beat my head against a wall. "The greatest mis allocation of resources in the history of the World" continues....

Alan from the sunny Islands

Hi Alan. Nice to see a fellow Jamaican on the Oil Drum though I no longer reside on the rock. Politicians the world over are the same. I have always wondered about the massive auto policy of the last few administrations, especially given the yearly oil import bill of over US$1 billion. I have also wondered about the procrastination in doing something about the JPS fuel sources like using LNG or starting an OTEC trial as opposed to bunker C or number 2 diesel oil and the obviously skyrocketing prices.

No doubt island boy that you are or would be a fan of Raymond Kurzweil


He predicted the fall of the Soviet Union. He predicted the explosive spread of the Internet and wireless access.

Now futurist and inventor Ray Kurzweil is part of distinguished panel of engineers that says solar power will scale up to produce all the energy needs of Earth's people in 20 years.

I don't kmow if I'd be a fan of his. I'm very skeptical of people who look too far into the future with too much detail. The human race has aa very unpredictable way about it. I'm definitely a fan of who ever created the graphic. Looking at the picture and the numbers, one easily comes to the conclusion that there is way more energy available than we need.

If we could harness just one tenth of 1% of the available solar energy, we would have almost six times more than we need. Another way of putting this is that, if we could get 10% efficiency in harnessing the energy that falls on just 1% of the surface of the earth, we'd have almost six times more than we need. Or you could say that, if we we could get 10% efficiency in harnessing the energy that falls on just 1% of the surface of the earth, not covered by water, we'd have more than we need.

Then there's the efficiency of consumption.

How much energy are we wasting?
How many individuals are propelling around 5,000+ lbs. of metal with them every where they go?
How much recycle able stuff are we throwing away?

I'd bet we could probably get by easily with two thirds of what we consume now, if we have to and in the case of the US, you guys could probably thrive on less than half of what you use now.

It's like my belief that algae is going to provide an answer to at least one of the problems we face. Algae has properties that are unmatched in the plant kingdom. It can double it's mass quicker than any other plant. It lives for one thing, to photosynthesize and multiply, It does not need to develop things like roots, branches and leaves. It takes it's nutrients directly from its growth medium and gets it's energy directly from the sun.If anybody can show me a plant that would be better at treating water while sequestering CO2 and storing energy, I'd certainly be interested.

Neither Solar power nor algae might be developed quickly enough to prevent die off but, their value going forwards just seems obvious to me, But then, I'm just like that!

In a recent e-mail question and answer session, the boss of Shell put some of the hype about solar into perspective:

And if every house in Britain had a 4-m² solar PV panel set up on the roof, it would only generate the same amount of electricity in a year as half of a modern, 1-gigawatt nuclear power station. For context, in 2005/06, Britain’s maximum demand was 63 gigawatts.


I ran his figures, and that is maybe a bit conservative, but if you call it 1GW the general picture doesn't change.
The media and 'renewables-or-nothing' movement has saddled the debate with entirely unrealistic expectations.

Solar is a great resource, and will play a big part in hot climates for peak load, and wind will also do it's bit, but for the moment low-carbon technology is spelt n-u-c-l-e-a-r.

This is especially true in high latitude countries where it ain't very sunny in the winter.

Why use the ludicrously small area of 4-m2? That is not a very big area and certainly less than the average solar exposed roof area of UK homes. I would think a figure closer to 10 - 15 m2 would be more appropriate. That of course does not include the equally, if not larger roof area available on commercial and industrial facilities that could double or triple the output. It is possible for rooftop solar, even in the UK to produce eventually between 10 and 20% of your power.

The figures can be altered in various ways, but do give some idea of the scale needed.
You can multiply the area, but in fairness you should then try calculating the amount of power produced when you most need it, in the middle of the winter.
The boss of Shell just gave the amount of power generated over a year, in December through to March the figures are much, much worse.
You then have the little matter of installing them on every roof in the country.
With the most generous allowances for cost reductions the figures would be truly fantastic.
To make them work you would need to go, perhaps, to thin film technology, imagine that you could somehow reduce costs until it was about the same as paint, and then print them on to roofing tiles and so on.
It would not be economic, and by that I mean in any way at all financible, to do anything but replace present roofs as they came up for renewal, so you might be looking at a 40 year schedule.
Solar has a great role to play, very shortly in providing peaking power in hot areas, but is not a practical major source of power at northerly latitudes save for limited off-grid applications.

I disagree. Solar has a great role to play, even in northern latitudes, especially in concert with wind. You see, fortunately, in winter the wind resource tends to be at its maxima whereas the inverse is true of solar. It means they work well together. What do the northern areas do in the summer when wind is at it lowest? They still need power, albeit less. We need to take a systems approach when thinking of renewables including strengthening interconnections, which I admit is not comfortable for many traditional power engineers to accept.

German and other studies have shown repeatedly that a combination of resources (wind, solar, wave, tidal, biomass, geothermal, efficiency etc) with strong interconnections can greatly reduce the energy storage needs.

On economics, watch what happens to prices once the low latitude areas approach parity in the next 5 - 10 years. It then only becomes a matter of time before it makes sense in the north as well, obviously however at a higher price than for the south

In 5 or 10 years I would be most happy if that should prove to be the case.
However, wind resources in Europe other than off-shore which at the moment is colossally expensive are limited - the German experiments which you referred to largely ended up burning biogas, with all the implications for land use and food production that has.
Anything can be made to look good if you plug in the right assumptions.
When PV operates economically at commercial scale in its most favourable locations then is the time to consider to what extent it can be used elsewhere.
In practise Germany retains its heavy reliance on coal.
At the moment in northern Europe the only way we know how to produce the needed amounts of power in a proven way is with nuclear power - 80% of France's electricity is already produced that way, very safely.

I mean, Germany, one of the most renewable resource poor countries in the world per capita manages better than a 10% renewable contribution already from wind, solar, biomass, geothermal etc. and they started in earnest only about 10 - 15 years ago. The offshore wind push has not even started.

Regarding your comments regarding assumptions, the exact same argument can be made for nuclear. Assuming a tranquil future geopolitical environment, no further issues with decommissioning the existing fleet and dealing with the waste including the low level stuff that many dismiss as of no concern. Regarding the safety of the French power, I assume you ignore the persistent and chronic health problems, especially on the young of low-level radiation exposure like that from the La Hague plant.

We will just have to agree to disagree.

It is a question of ramp up time. We don;t, in practise know how to do renewables for the purposes of running the economy.
Sure, they can make a contribution, but the idea that we can not only do without oil, and then gas, and coal as it is too carbon intensive, and then afford to throw away the one low carbon resource we have which is proven at large scale is surely fanciful in the most moderate estimate, above all in dark, seasonal, not very windy, highly populated Northern Europe.
As I said, in practise Germany runs on coal - and turns out a great deal more emissions than nuclear France.
As for the allegations about low-level radiation and so on, they are just that, allegations - if they could be proved we would all have heard of them in extensio, the many enemies of nuclear power would ensure that.
Personally I am not looking forward to the lack of power, and extreme cold certain in Britain from the combination of neither providing adequate insulation - it takes 3 times as much energy here to heat a house as in Germany - and not building nuclear power stations, and regardless of what people imagine might be the health impacts of nuclear energy the cold in Britain will undoubtedly lead to many excess deaths, just as the present continuation of coal burn due to not going nuclear has done as that is a proven killer.

When I became BP chief executive just over a year ago, I warned that the supply and demand balance for energy was very tight. But, in common with most people, I never expected to see the oil price go quite as high, quite as rapidly, as it has in the past few months.

Who does he define as most people? He obviously hasn't heard of Matthew Simmons et al or "The Oil Drum" followers!

Even in the south we need to get solar costs down. A friend just had two contractors bid his new house for solar. It is a big house but it's a super insulated foam/concrete design. The bids were nearly the same: $75,000 and it would only supply 25% of his demand.

Years ago I saw a study that said the Wyoming and Montana had the best economic incentive for solar. Yes...the output would be relatively small given the climate there but the value of the electrical generation was much greater due to the standard costs in the region.

Mass production might bring the cost down but I think it would take a gov't mandate and a good bit of time to do so. Same old chicken and egg: if suddenly everyone could install solar economicly there wouldn't be a supply. Unfortunately I wouldn't hold my breath for the gov't to be that proactive.

Sounds either like your friend really got ripped off or he uses an insane amount of energy. $75,000 should get you near 7 - 8 KW of solar which in Arizona should be good for well over 1000 KWH per month. Even in Arizona with AC demand that should be close to covering at least 1/2 of the electricity needs.


Great article. This posturing deserves to be demolished.

Access to resources for international oil companies such as BP remains very restricted. Resource nationalism is on the rise. That is important because it is the oil majors that have some of the best technology for bringing difficult resources on-stream.

Saudi Aramco could justifiably claim to be not only the largest but also one of the most technically competent oil companies on the planet. The idea that they need BP's technology borders on racism, and absurdity.

The western oil companies are running out of places to make fat profits and they want to be given ownership of some new resources. Saudi Arabia and most other OPEC nations don't need BP or any other western oil company. Apart from the secrecy which isn't helping any of us, Saudi Aramco have displayed far greater stewardship of their natural resources than any western oil company ever has.

The few countries that do need technical help will quite happily get it on better terms from China, or they may even choose to partner with a western oil company but the terms won't be to the companies liking anymore.

Wow, why so agro? If the president of Green Peace says global warming is real, people believe him even though he is not a scientist nor has he studied global warming in great detail.

The president of a huge oil company tells you about the situation with oil and people are immediately skeptical. A man that really should know what he is talking about is vilified? This is odd.

You either want more energy development and affordable gas or you don't. If you want it, support efforts to increase domestic production like

www.AmericansForJobsAndEnergy.org AND

If you are against it, then stop using oil and you will no longer be a hypocrite.

If the president of Green Peace says global warming is real, people believe him...

... because he's only repeating the conclusions of a very large international body of scientists.

Of course, if someone from Greenpeace says it, you think that must make it wrong regardless of where it came from.

The president of a huge oil company tells you about the situation with oil and people are immediately skeptical. A man that really should know what he is talking about is vilified? This is odd.

Why is it odd?  We know he's wrong, and that his statements are self-serving nonsense.  We vilify him because he SHOULD know what he's talking about, yet we can find massive holes in his facts and logic.  He insults our intelligence and gets what he deserves for it.

You either want more energy development and affordable gas or you don't.

You're doing the same thing, implicitly equating "energy development" with oil.

I don't want affordable gasoline.  I want affordable, clean energy.  Gasoline isn't clean, was only ever affordable by ignoring externalities, and should have been taxed to hell and back as good environmental, economic and foreign policy long ago.

thank you mr BP.
thank you research24 for the Clarity !!!

thank you all oil producers for delivering a quality product to my neighorhood for such a great price.
a price this I could easily afford ( if broke) buy cancelling my inane Cell phone service.
or my internet connection, or turning down my thermostat. Gee !

No matter, all the venom and hatred, you still have my blessings. I stand alone, please send more. soon.
My only compliant is those missing roller skating girls with pump nozzles , In LA 1970. Sigh !

all these words above , and all should be directed to that person in the mirror.
you (collective) are the problem.
stop whining and do something.

It will never be solved by your government ( they will destroy all they touch , exceptions? where ? , when ?)

Take stock , take action.

you have no birth right to any free energy.

keep a stiff upper lip. Mates !