Environmental activist network argues that the oil industry might be approaching a tipping point from fall in the price, advances in technology and policies on climate change
A long-term decline in the demand for oil could undermine the huge investments in Canadian tar sands, which have been heavily opposed by environmentalists, according to a report published today.
The report, by Greenpeace, will make uncomfortable reading for the companies that are investing tens of billions of pounds to exploit the hard-to-extract oil in the belief that demand and the price would climb inexorably as countries such as China and India industrialise.
Citing projections from the oil producers’ cartel Opec and the International Energy Agency, as well as various oil experts, the report casts doubt on the conventional assumption that consumption and prices will begin gathering pace once the world pulls itself out of recession.
It argues that alongside the cyclical fall in the oil price there are more fundamental structural changes taking place. These are driven by advances in energy efficiency and alternative energy, cleaner vehicles, government policies on climate change and concerns over energy security. Greenpeace has posted the report to 200 shareholders in Shell and BP, including pension funds, in an effort to put pressure on the companies to think again. BP reports quarterly results tomorrow and Shell on Thursday.
Lorne Stockman, the author of the report, said: “A peak in oil demand was barely discussed even a year ago, but now it is a viable idea. When it happens, I wouldn’t want to guess, but it will happen sooner than we thought. There has been lots of talk about a supply peak, but it is good to start talking about a demand peak, and that has huge implications for these companies.
“All of the international oil companies as you look beyond 2020 need a high oil price to be profitable, because they are increasingly being pushed to develop expensive resources in not just the tar sands, but in deep water and offshore Arctic sites.
“But there is something more structural going on,” he added. “Governments are beginning to act, and not just the Obama administration. In the EU, the policy driver is climate change, and in China and the US, it is about energy security and the vulnerability of the economy to volatility in the oil price.”
The rush to exploit the tar sands in Canada has been described as a modern day gold rush that has led to a huge boom in once sleepy towns in the province of Alberta. The oil was once considered too difficult and expensive to extract as it is a mixture of clay, water and bitumen.
Many of the projects have been mothballed until the oil price recovers. It has fallen from a peak of $147 a barrel and is currently at about $68. Merrill Lynch estimates that the price would need to settle at about $80 to make further investment viable. Critics argue that tar sands extraction is disastrous to the environment, causing deforestation, requiring huge amounts of water and greenhouse emissions three to five times greater than conventional crude.
The report notes that Opec and the IEA have been revising projections for oil demand downwards since 2006, with by far the sharpest revision this year. Opec has revised its 2025 oil forecast down by 12% within the past four years.
Peter Hughes, who spent much of his career at BP and BG, and is now director for global energy at consultancy firm Arthur D Little, recently wrote a report titled ‘The Beginning of the End for Oil?’ He supports the Greenpeace view and said the correlation between oil demand and GDP growth has been weakened. “It is widely accepted that demand in OECD countries has plateaued and is going into decline but it has also been thought that would be massively outweighed by growth in China. But the Chinese think long-term and identified some time ago that the biggest threat to their economic growth was an increasing dependency on imported energy, which is anathema to them. The conclusion is clear – to reduce the reliance on hydrocarbons through energy efficiency and fundamental technology change. I think we will reach peak oil demand in the middle of the next decade.”
About 50% of oil demand in the US fuels cars and the report takes hope from the Obama administration having tied recent bailouts for the industry to the development of cleaner vehicles. But it notes the US is far behind China, where government mandates mean new Chinese cars are 56% more fuel-efficient than those built in Detroit. Fuel-efficient cars in China attract 1% sales tax and sports utility vehicles, 40%.
Greenpeace also contends that a high oil price is simply unsustainable. It cites research from Cambridge Energy Research Associates, which suggests that economies become constrained when the price moves into a band between $100 and $120 a barrel, causing the price to fall back. Another report from energy business analysts Douglas Westwood puts the “recession threshold” even lower, at $80 a barrel.
Shell, which has delayed a number of tar sands projects, argues that energy supply will struggle to keep up with the demands of a growing global population and that in the long term there will be upward pressures on energy prices that justify investing in the Canadian tar sands. “Our first oil sands operation, the Athabasca Oil Sands Project (60% Shell share) was built between 1999 and 2003, when the oil price was considerably lower,” a spokeswoman said. Shell has the highest exposure of the majors to the tar sands and is most at risk from a decline in demand.
There are contrary views. The Saudi oil minister warned in May that the world could be facing another oil shock, with prices above $150 within two to three years through a lack of investment in new capacity. The International Monetary Fund has expressed similar concerns. Even Greenpeace does not suggest that there will not be temporary squeezes on demand and price spikes. But it believes that the world might fast be approaching a tipping pointthat could have profound implications.





One giant leap for a greener Britain
July 20, 2009Only an Apollo-like effort of imagination and action will help us move to a low carbon economy
Forty years since the Eagle landed on the moon, the idea of a new Apollo project has become shorthand for how we should tackle climate change: politics forcing through the technological limits, a decade-long push, and a nation unified for a shared goal. The Guardian’s Manchester Report last week showed there are plenty of reasons for optimism about the technologies that can take us into the low-carbon future.
But like Apollo, the challenge of climate change is to combine political will with technological leapfrog – and, in fact, the political challenge is almost unparalleled in human history. We can’t all be rocket scientists (or climate scientists), but every one of us is needed for the political moonshot of today.
If the world agrees to act on climate change at the Copenhagen conference in December, countries will need to maintain their radicalism not just for a year or two but for decades. There must be a consensus from the richest country to the poorest and from democracies to autocracies. When we all depend on each other’s actions, the world can’t afford climate free-riders.
At home, our consensus already stretches from businesses to trade unions and from the Women’s Institute to MTV. But for the pace and breadth of change that is needed many more people must be won over to our cause – to make change themselves and to build a climate change consensus. Climate change denial is given short shrift, but we should not confuse widespread acquiescence for universal enthusiasm. Climate change champions face the classic test of take-off political movements: how to widen the circle of the committed without watering down the clarity of the message.
First, if we are in the persuasion business, all of us have to talk as much about the advantages of the low carbon choice as the disaster that awaits if we don’t act. We don’t do this enough.
Just look at energy. Two-thirds of the world’s gas is in Russia and the Middle East, but renewable energy is homegrown and can help us stem a rising dependence on imports. In manufacturing, there is a thriving set of new industries dependent on low carbon and on ways of cleaning up old sectors, and a chance to build a broader-based economy. Only by making the transition, with government support, can we reap the benefits.
And let’s use the moment and cause to think about how we design cities and towns to make it easier for people to enjoy greener space, use public transport and have a better quality of life.
Second, we need not just to appeal to people to change their lifestyles but make it easier for them to do so. Here government has a central role. What will make more people leave the car in the garage and take a bike to the train station? Not finger-wagging, but convenience. As Andrew Adonis, the transport secretary, pointed out last week, the Dutch town of Leiden has three times as much bike storage at its station as all the London terminals put together. In Holland a third of journeys to stations are by bike; in Britain it’s 2%. And from bike racks to loft lagging, the UK Low Carbon Transition Plan is designed to help make it possible for people to find a better way.
Third, we need to win some big and difficult arguments to create consensus. To do this we need to be candid about the pressures created by the transition to low carbon and show we will try to alleviate them where we can.
When I launched the plan, last week, I said energy prices were likely to rise by 2020. We need to convince people that despite the costs, the transition is right because the costs of not acting are much greater, and high-carbon fossil fuels offer an insecure future. We need to find ways of making the transition as fair as we can, insulating particularly the poorest people from these effects.
I believe the biggest threat to the countryside is not wind turbines but climate change. We do need to site new turbines in the most appropriate places, but we also need to persuade people that they have to go somewhere, and that the catastrophe wrought by climate change would indeed destroy many parts of our green and pleasant land.
However, building the resolve of a country, let alone a planet, is a big ask. Change happens not just because leaders want it, but because people demand it. Groups are springing up to persuade people to act on climate change. They ally the power of imagination – the rocket on the moon – with the power of example, action in their own lives.
They must also be the kernel of the movement, sustained and broad, that we need to exert pressure on governments up to Copenhagen and beyond. While this week we celebrate Apollo, it is persuasion, campaigning and political argument, not just technological advance, that will generate the giant leaps humankind needs on climate change.