Market News

 June 09, 2011
DECC accepts warning of rising peak oil risks

 Department of Energy and Climate Change consultation acknowledges real risk of significant long-term rises in oil prices

Experts have urged the government to shield the UK against rising oil prices and market shocks as part of a major consultation which revealed a widespread concerns that global oil production will peak before 2030.

The Department of Energy and Climate Change (DECC) yesterday published the results of a call from chief scientific advisor David Mackay for evidence to help predict the uncertain future supply and demand of crude oil.

The 11 responses from experts including Shell and the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) revealed a consensus that prices are likely to increase to more than $100 per barrel in the medium term.

Most said that total oil production will peak before 2030, and many argued that there will be significant supply constraints before 2020, with decline driven by geological and investment factors.

Respondents urged the government to help protect the UK against shocks by making it a priority to reduce oil demand. They suggested this could be done with an increased focus on transport efficiency, as the sector accounted for 53 per cent of global oil demand in 2009.

The government was also urged to lean on oil producing nations to phase out subsidies for oil products, which dampen demand responses to price increases.

Responding to the consultation, a DECC spokesman admitted that there is a real risk of significant rises in oil prices and volatility. However, he stopped short of drawing any solid conclusions from the information-gathering exercise.

"We do not subscribe to a particular view on when oil production is likely to peak," he said. "Whatever people's views on peak oil, and there are many, the key point is that the risk of significant rises in oil prices and volatility is real.

"We are well aware of the conclusion [that conventional oil production is unlikely to grow in the future as it has in the past] and agree that there are significant challenges for investment in future oil production, and that there is a role for governments to play in working towards enhancing energy supplies and reducing demand for fossil fuels."

However, John Miles, chairman of ITPOES, urged the government to take swift action to defend the UK against shocks.

As revealed by BusinessGreen, ITPOES has been asked by DECC to advise the government on how it could reduce its exposure to peak oil, and has requested a meeting with the Treasury to discuss the matter.

"There are a whole range of undoubtedly complex issues around energy supply and security but, as we have seen from volatility related to the current situation in the Middle East, we need to be prepared for the possibility that oil prices could soar above their current levels within the next five years," said Miles.

"As such, we welcome the fact that the government is taking action and promoting renewables, but we would also emphasise the need for urgency here. That's why we are asking the government to think about some of the more difficult scenarios we could find ourselves in in five years' time and then ask: 'What might we wish we had done in 2011?'.

"We are pleased that the minister has invited us to work with DECC on developing and testing these alternative scenarios."

The news came as BP revealed yesterday that oil consumption rose by its fastest rate since 2004 last year, and that China became the world's largest energy consumer, overtaking the US.

BP said that increases in fossil fuel consumption in 2010 suggest that global carbon dioxide emissions from energy use rose at their fastest rate since 1969.