Experts: Petroleum May Be Nearing a Peak

Could the petroleum joyride — cheap, abundant oil that has sent the global economy whizzing along with the pedal to the metal and the AC blasting for decades — be coming to an end?

Some observers of the oil industry think so. They predict that this year, maybe next — almost certainly by the end of the decade — the world's oil production, having grown exuberantly for more than a century, will peak and begin to decline.

And then it really will be all downhill. The price of oil will increase drastically. Major oil-consuming countries will experience crippling inflation, unemployment and economic instability. Princeton University geologist Kenneth S. Deffeyes predicts "a permanent state of oil shortage."

According to these experts, it will take a decade or more before conservation measures and new technologies can bridge the gap between supply and demand, and even then the situation will be touch and go.

None of this will affect vacation plans this summer — Americans can expect another season of beach weekends and road trips to Graceland relatively unimpeded by the cost of getting there. Though gas prices are up, they are expected to remain below $2.50 a gallon. Accounting for inflation, that's pretty comparable to what motorists paid for most of the 20th century; it only feels expensive because gasoline was unusually cheap between 1986 and 2003.

And there are many who doubt the doomsday scenario will ever come true. Most oil industry analysts think production will continue growing for at least another 30 years. By then, substitute energy sources will be available to ease the transition into a post-petroleum age.

"This is just silly," said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Mass. "It's not like industrial civilization is going to come crashing down."

Where you stand on "peak oil," as parties to the debate call it, depends on which forces you consider dominant in controlling the oil markets. People who consider economic forces most important believe that prices are high right now mostly because of increased demand from China and other rapidly growing economies. But eventually, high prices should encourage consumers to use less and producers to pump more.

But Deffeyes and many other geologists counter that when it comes to oil, Mother Nature trumps Adam Smith. The way they see it, Saudi Arabia, Russia, Norway and other major producers are already pumping as fast as they can. The only way to increase production capacity is to discover more oil. Yet with a few exceptions, there just isn't much left out there to be discovered.

"The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground," Deffeyes said.

There will be warning signs before global oil production peaks, the bearers of bad news contend. Prices will rise dramatically and become increasingly volatile. With little or no excess production capacity, minor supply disruptions — political instability in Venezuela, hurricanes in the Gulf of Mexico or labor unrest in Nigeria, for example — will send the oil markets into a tizzy. So will periodic admissions by oil companies and petroleum-rich nations that they have been overestimating their reserves.

Oil producers will grow flush with cash. And because the price of oil ultimately affects the cost of just about everything else in the economy, inflation will rear its ugly head.

Anybody who has been paying close attention to the news lately may feel a bit queasy at this stage. Could $5-a-gallon gas be right around the corner?

"The world has never seen anything like this before and so we just really don't know," said Robert L. Hirsch, an energy analyst at Science Applications International Corp., a Santa Monica, Calif., consulting firm.

Still, he added, "there's a number of really competent professionals that are very pessimistic."

The pessimism stems from a legendary episode in the history of petroleum geology. Back in 1956, a geologist named M. King Hubbert predicted that U.S. oil production would peak in 1970.

His superiors at Shell Oil were aghast. They even tried to persuade Hubbert not to speak publicly about his work. His peers, accustomed to decades of making impressive oil discoveries, were skeptical.

But Hubbert was right. U.S. oil production did peak in 1970, and it has declined steadily ever since. Even impressive discoveries such as Alaska's Prudhoe Bay, with 13 billion barrels in recoverable reserves, haven't been able to reverse that trend.

Hubbert started his analysis by gathering statistics on how much oil had been discovered and produced in the Lower 48 states, both onshore and off, between 1901 and 1956 (Alaska was still terra incognita to petroleum geologists 50 years ago). His data showed that the country's oil reserves had increased rapidly from 1901 until the 1930s, then more slowly after that.

When Hubbert graphed that pattern it looked very much like America's oil supply was about to peak. Soon, it appeared, America's petroleum reserves would reach an all-time maximum. And then they would begin to shrink as the oil companies extracted crude from the ground faster than geologists could find it.

That made sense. Hubbert knew some oil fields, especially the big ones, were easier to find than others. Those big finds would come first, and then the pace of discovery would decline as the remaining pool of oil resided in progressively smaller and more elusive deposits.

The production figures followed a similar pattern, but it looked like they would peak a few years later than reserves.

That made sense too. After all, oil can't be pumped out of the ground the instant it is discovered. Lease agreements have to be negotiated, wells drilled, pipelines built; the development process can take years.

When Hubbert extended the production curve into the future it looked like it would peak around 1970. Every year after that, America would pump less oil than it had the year before.

If that prognostication wasn't daring enough, Hubbert had yet another mathematical trick up his sleeve. Assuming that the reserves decline was going to be a mirror image of the rise, geologists would have found exactly half of the oil in the Lower 48 when the curve peaked. Doubling that number gave Hubbert the grand total of all recoverable oil under the continental United States: 170 billion barrels.

At first, critics objected to Hubbert's analysis, arguing that technological improvements in exploration and recovery would increase the amount of available oil.

They did, but not enough to extend production beyond the limits Hubbert had projected. Even if you throw in the unexpected discovery of oil in Alaska, America's petroleum production history has proceeded almost exactly as Hubbert predicted it would.

"When it pretty much worked," Lynch said, "he decided, aha, it has to be a bell curve."

But many experts see no reason global oil production has to peak at all. It could plateau and then gradually fall as the economy converts to other forms of energy.

"Even in 30 to 40 years there's still going to be huge amounts of oil in the Middle East," said Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis.

A few years ago, geologists began applying Hubbert's methods to the entire world's oil production. Their analyses indicated that global oil production would peak some time during the first decade of the 21st century.

Deffeyes thinks the peak will be in late 2005 or early 2006. Houston investment banker Matthew Simmons puts it at 2007 to 2009. California Institute of Technology physicist David Goodstein, whose book "The End of Oil" was published last year, predicts it will arrive before 2010.

The exact date doesn't really matter, said Hirsch, because he believes it's already too late. In an analysis he did for the U.S. Department of Energy in February, Hirsch concluded that it will take more than a decade for the U.S. economy to adapt to declining oil production.

"You've got to do really big things in order to dent the problem. And if you're on the backside of the supply curve you're chasing the train after it's already left the station," he said.

For example, the median lifetime of an American automobile is 17 years. That means even if the government immediately mandated a drastic increase in fuel efficiency standards, the conservation benefits wouldn't fully take effect for almost two decades.

And though conservation would certainly be necessary in a crisis, it wouldn't be enough. Fully mitigating the sting of decreasing oil supplies would require developing alternate sources of energy — and not the kind that politicians and environmentalists wax rhapsodic about when they promise pollution-free hydrogen cars and too-cheap-to-meter solar power.

If oil supplies really do decline in the next few decades, America's energy survival will hinge on the last century's technology, not the next one's. Hirsch's report concludes that compensating for a long-term oil shortfall would require building a massive infrastructure to convert coal, natural gas and other fossil fuels into combustible liquids.

Proponents of coal liquefaction, which creates synthetic oil by heating coal in the presence of hydrogen gas, refer to the process as "clean coal" technology. It is clean, but only to the extent that the synthetic oil it produces burns cleaner than raw coal. Synthetic oil still produces carbon dioxide, the main greenhouse warming gas, during both production and combustion (though in some scenarios some of that pollution could be kept out of the atmosphere). And the coal that goes into the liquefaction process still has to be mined, which means tailing piles, acid runoff and other toxic ills.

And then there's the fact that nobody wants a "clean coal" plant in the backyard. Shifting to new forms of energy will require building new refineries, pipelines, transportation terminals and other infrastructure at a time when virtually every new project faces intense local opposition.

Energy analysts say coal liquefaction can produce synthetic oil at a cost of $32 a barrel, well below the $50 range where oil has been trading for the past year or so. But before they invest billions of dollars in coal liquefaction, investors want to be sure that oil prices will remain high.

Investors are similarly wary about tar sands and heavy oil deposits in Canada and Venezuela. Though they are too gooey to be pumped from the ground like conventional oil, engineers have developed ways of liquefying the deposits with injections of hot water and other means. Already, about 8 percent of Canada's oil production comes from tar sands.

Unfortunately, it costs energy to recover energy from tar sands. Most Canadian operations use natural gas to heat water for oil recovery; and like oil, natural gas has gotten dramatically more expensive in the past few years.

"The reality is, this thing is extremely complicated," Hirsch said. "My honest view is that anybody who tells you that they have a clear picture probably doesn't understand the problem."

I can't believe people have such short memories and can't recall this same BS from the 70's and 80's when they tried to justify ridiculous oil prices.

There is so much petro product out there that when the new portable energy source is developed, they'l have to pay to cart the stuff away.

And did I mention Bio Diesel which can be made profitably at these oil prices? - made from corn and such which is renewable every year?

Oil shales may hold another 14,000 billion barrels -- a 500 year supply."
Additional Petroleum Resources.

The estimates above do not include unconventional oil resources. Conventional oil refers to oil that is pumped out of the ground with minimal processing; unconventional oil resources consist largely of tar sands and oil shales that require processing to extract liquid petroleum. Unconventional oil resources are very large. In the future, new technologies that allow extraction of these unconventional resources likely will increase the world’s reserves.

Oil production from tar sands in Canada and South America would add about 600 billion barrels to the world’s supply.20
Rocks found in the three western states of Colorado, Utah and Wyoming alone contain 1,500 billion barrels of oil.21
Worldwide, the oil-shale resource base could easily be as large as 14,000 billion barrels — more than 500 years of oil supply at year 2000 production rates.22

It's relatively expensive to capture and pipe.

As the price of natural gas goes up more of the burned off gas is captured. It's a simple economic question. The gas has to pay at least the cost of capital on the equipment to capture it otherwise it is cheaper to just burn it off.

Technology like inexpensive gas burning fuel cells might capture the last of the gas from remote wells. Again simple econ.

"Yet with a few exceptions, there just isn't much left out there to be discovered."

This journalist is nuts! I swear, none of them must ever fly coast to coast (as I have and still do a few times a year.) There are parts of the USA that man hasn't even stepped foot on, let alone all the undiscovered places left on the planet! Good Golly. These people must never leave their cubicles.

Maryland Congressman Roscoe Bartlett (R) has been giving a speech on "peak oil" for months in the Congress. I believe that he is the only scientist in the House - or the Congress for that matter.

The latest version of the speech is available at:

http://www.bartlett.house.gov/SupportingFiles/documents/energyspeech.pdf

You will know the "peak oil theory" is real when companies specializing in such recovery techniques start growing at an accelerated rate. As yet, they are not.

I disagree, we will know that peak oil is real when the price per barrel does'nt fall in a year or two because new production is coming on line. It is something that will be obvious only in hindsite. Price signals are confounded by increasing asian demand.

But high priced oil carries mixed results. It has been so cheap it has held back development of more expensive alternatives. The trick will be to control the next 'cheap' energy source. Coal is obviouly the next one in addition to the previous one. However it is dirty and not all that cheap to use for vehicle fuel, so cannot do the job alone. I don't know what the next dominant tech will be, but it will be built because someone sees a buck in it.

Humm that chart looks suspicious to me....

I does to me too. We're talking about this idea that "there just isn't much left out there to be discovered". Somebody please help me out if I'm missing something here, but if we already knew for sure it was there, then it wouldn't be "left out there to be discovered". So how can they know for sure that it's not there?

These people seem to want to make everything into some kind of friggin' crisis. Bedwetting aside, it's not like we're running out of the stuff. Using DOE info proven reserves have been keeping up with demand just fine thank you for decades.

These eco-whacky greenies try to tell us that the only factor is some fixed amount of oil in the ground. Horse feathers. What they don't want to admit is that what matters is the oil we can get to-- and that keeps increasing.

There is a heavy oil deposit that runs almost the length of South America that contains between 4 and 11 Trillion,Thats with a T,Trillion barrels of "Heavy" oil.In 2003 it was said it would cost an extra 25 to 50 cents a gallon to refine into gasoline.

If I recall gas was $1.20 a gallon 2003?

There IS NO OIL SHORTAGE!Only a shortage of BRAINS!

I'm not too concerned about oil production peaking. There are alternative energy sources - coal liquefication, oil shale, oil sands, methane hydrates, bio-diesel, thermal polymerization - all are more expensive to develop but they do exist today.

As the price of oil increases these alternate sources will come online. Even if prices at the pump double to say 5$ a gallon the consumer has alternatives as well - purchase vehicles that get better mpg. If I'm driving a vehicle that gets 20 mpg I can upgrade to a car that gets 30, 35 or even 40 - hybrids and diesels can match that already. Just doubling the mpg from 20 to 40 drops the real cost of gas from 5$ per gallon right back to $2.50 per gallon.

Time to develop and concentrate, and prioritize renewable resources such as wind, tidal currents, and solar to reduce reliance on fossil fuels.

How come it is, when we find veins of gold or copper, we don't attribute THAT particular mineral distribution as a result of surface life forces (verily, 'fossil minerals'), yet, we will attribute veins of coal or oil to surface life eons ago.

Meanwhile, back in our galaxy, our solar system, and on our world - what is the percentage of ALL matter that contains (or is) carbon (in one FORM or another)?

No, it would take much longer. A median lifetime of 17 years (which seems kind of long to me given my experience with cars) translates to about a 4% failure rate per year. At that rate it'd take over fifty years for 90% of current autos to be replaced.

" The Utah case is interesting, sure. But even that "huge" find is small compared to what is in the Arctic."Well put mc6809e ... and it is a little early to declare that anyone [Wolverine?] had found a billion barrels of oil based on a couple of good wells in an area that has produced a boatload of dry holes [Signurd, Utah is not Midland, Texas or even Roosevelt, Utah ... although it is barely conceivable that it might turn out to be a truly big find from a national perspective.]

"If I'm driving a vehicle that gets 20 mpg I can upgrade to a car that gets 30, 35 or even 40 -"

My Jetta TDI runs 46-48 in town and 50-54 at highway speeds (70mph). Been driving VW diesels since 79.

Methane is also abundant, just hard to get at right now. Best guess is there is enough to last thousands of years.

The article, even if true, is no big deal since it assumes like most static universe arguments that there is nothing else out there and therefore we will all die. Solar is near the break even point. Keep the oil prices up and it will take over.

The oil companies do not want oil to run out since it will mean their end. Nor do the producers.

Difficult to read the graph. I assume it purports to show that discoveries are leveling off. When I received new employee orientation at a Big Oil Company I learned that exploration is budgeted to provide a constant 20 years of reserve. Did you know that reserves are an asset that an oil company pays taxes on? There are reasons why 20 years of forward supplies are 'discovered'.

"The article, even if true, is no big deal since it assumes like most static universe arguments that there is nothing else out there and therefore we will all die. Solar is near the break even point. Keep the oil prices up and it will take over."

True to a degree. There are other sources of energy. The question is whether they will be developed soon enough if oil is peaking now [answer "no" -- these will all require investment and time to bring on stream] and whether the necessary investment will be made to ensure an adequate supply after a period of adjustment [the longer the average citizen / the average stockholder in energy companies and the decision makers within industry believe this isn't a problem the longer it will be before it is addressed.]

Result of a "why worry the market will take care of itself" logic ultimately yields a result that is a little like the eco nut / Democrat's opinion that drilling in ANWR won/t have an effect for a certain number of years. The math is correct, but if the action is not taken now it will always be the same number of years into the future before a production can begin. If the disruption is over the next few years where does that get us?

Matt Simmons' [an investment banker who admittedly may have a reason to be somewhat alarmist] opinion on this question is that the data [particularly from OPEC members and most particularly from Saudi Arabia] is bad enough that we just do not know.

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