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 think the oil we've gotten till now will be thought of as very inexpensive by our descendants. We should drain the arabs oil before it becomes worth even more. What we don't want is the arabs being the only exporters at the high price end of the oil as energy market.

The problem with your argument is one that environmentalists consistently make. At some point, without government interference, we will no longer use oil to power our vehicles. Technology will progress, and some smart inventors and businessmen will find something better.

This will happen long before the notion of running out of oil will even be a serious concern.

As that point oil will become worthless. Well, ok, that isn't exactly true, as oil has other uses to, but the notion of hording supplies to overpay an Arabic monopoly so we have some large reserve will seem as silly as the notion of hording whales for their oil...

Artificially restricting supplies only serves to raise prices and gouge the consumer. Just ask De Beers.

about .1% of the Earth's crust is Carbon.

The sixth (and some say fourth) most common element in the universe - and it is represented in the Earth's crust at only .1% ?

Sounds a little light to me ... but then, that's only the crust and not the mantle and/or core.

And from the mantle and core we could have percolating up into the crust 'condensates' or various congealed hydrocarbons 'collecting' over the years, as sort of a 'cracking' tower taking place from lower levels into the crust producing ... available oil ...

From: "The 10 Most Abundant Elements in the Universe" Carbon rates a 3.5 relative to Silicon and below Nitrogen which sits at 6.6.

"My understanding is that current production is maxed out. If true, then more refineries won't help."

Once again another kind of / sort of opinion: The story is that we are about maxed out of light sweet crude oil and maybe tankers. There is potential for more heavy and super heavy crude production. In order to refine a blend with more of the heavier crudes refinery through put is reduced at facilities that were designed to optimally process light sweet crudes. A straight run using only heavy crude is not a viable option at many refineries.

"But this is all besides the point for the forseeable future. Large tracts of easily recoverable domestic oil are off limits now for nothing more then rampant "not in my backyardism" and Gaiaist worship.

Were oil reserves really facing imminent exhaustion, or an inability to meet increased demand, this simply would not be the case. Before the highways in LA come to a halt (for a reason other then traffic), the brahmins of the coast will be forced to give up their precious sea views."

Ok -- consider this the equivalent of "all in." Tell me where these domestic oil reserves are, and give me a guess on how many barrels a day can be produced and for how long.

Oil is a great energy source for vehicles. I can safely say we won't stop using it for fuel untill it's too expensive to use as fuel. At that point it's price may stop raising but if it falls we will start burning it again. Oil is energy dense and relatively easy to turn into work.

Your point about envirowhackos predicting the sky was falling over and over misses the point.

Today it's the oil industry telling us this is the most they will be able to produce (more or less). You do understand the difference? People spend years in school learning the big money skills needed to pump oil profitably. They are the ones we are listening to. Not some smelly hippys claiming the sky is falling. Petrolium engineers saying the obvious; that future oil will cost more and be harder to find.

The only people I know that claim oil is near infinite still admit we will have to drill deeper to get it. Costs per barrel will continue to climb. Nobody is predicting declines in energy use.

In any case my opionion is that before oil as a technology is replaced, it will be at scarcity pricing levels. When this happens I want the arab reserves largely drained as money in their hands can only lead to bad things.

As I understand it the arab states need to pump at near capacity to keep up their debt service. To reiterate GOOD, pump them dry before it becomes too profitable for them again.

Leaving a domestic reserve is more a contingency for war etc. Even as an investment though it's not a horrible bet.

Find me someone that sells oil futures more then a few years out. In the short term its all about speculation.

Address the two points raised to you.

1) You've agreed with the envirocult that oil supplies are dwindling and will be depleted at some point in the near future.

Yet the US continues to hold easily accessible oil off the market.

How is this so? Please, I'd love to know how we are about to be unable to meet demand and yet also have so much available we can afford to value an unobstructed beach view for the glitterati higher.

2) The same prediction you are making, on much the same basis, has been made for 30-40 straight years and been proven false each time. Explain why this time Chicken Little is right and the sky really is falling.

The same prediction you are making, on much the same basis, has been made for 30-40 straight years

No it has'nt.

Fourty years ago the Ghea worshipers were waving their arms claiming oil would run out completely real soon now.

Today petroleum engineers are saying future oil will be harder to find and cost more then current oil. They predict this will be the long term trend.

Do you see the difference yet?

Your point about envirowhackos predicting the sky was falling over and over misses the point.

No, again it is *the* point.

The envirocult and its allies in the media have incessantly led the drumbeat that world oil supplies are about to run out. Again...and again...and again.

Each time, apparently unlike the last, this time they really mean it.

Ok, you've bought in that this time it is for real for some unascertainable reason, as the argument is the same as it has been. Why on earth should the American public buy into the propaganda and give up more of their freedom now? I say let's give it a decade or ten, and if this time the environuts are right I'll pay for a fillup of John Kerry's SUV...err...or something like that.

The only people I know that claim oil is near infinite still admit we will have to drill deeper to get it. Costs per barrel will continue to climb. Nobody is predicting declines in energy use.

Mathusian mathematics has continually failed since well, Malthus. Though the simplicity does continue to seduce for some strange reason. And just like agriculture, the efficieny of oil production will only increase, especially if government, and most notably environmental crusaders, are kept out of it.

And of course then some time in the future, someone will build a better mousetrap, earn himself a fortune, and develop a better way to power an automobile, and just like the worries about mast timbers, whale oil, or arable land, people will look back in amusement about the doomsaying of our time...

As I understand it the arab states need to pump at near capacity to keep up their debt service. To reiterate GOOD, pump them dry before it becomes too profitable for them again.

That isn't clear at all. In fact, the Saudis rather notably cut back on production before the election to try and get Kerry elected.

And again, opening up all American reserves to exploration is smart to begin with, holding large amounts of any resource in reserve only gouges the customer - as I mentioned most notably in regards to diamonds. The only difference here is that while De Beers primarily benefits itself by restricting the market, the American restrictions primarily benefit OPEC and the Leftist gliteratti.

Even as an investment though it's not a horrible bet. Find me someone that sells oil futures more then a few years out. In the short term its all about speculation.

Certainly even if oil futures are normally dominated by short term concerns, the coming shortage is a gold mine for those informed enough to get in right now...no?

Which is interesting because as I challenged you the only people I see rushing to invest in oil are the same ones that fell for gold a few years back.

Where did you get that idea?

Were you paying attention for the last fourty years. When did an executive of a major oil company say we were at or near peek oil prior to the last few years.

The petroleum industry ignored the nut cases. Prices were flat or dropping (except during unusual circumstances like oil embargos).

Now it's the petroleum industry saying we can't produce any more and prices are rising absent OPEC manipulations. Which part of supply and demand don't you understand.

Even if we are'nt at peak oil yet the growth in pumping rate does'nt keep up with the growth in demand.

Name a freeper who says the 'sky is falling'. The ones I see all accept that as prices rise replacements will be found. Of course new reserves will be found, each year the average size of newly discovered reserves is smaller.

are you bringing this up in relation to the non-fossil fuel theory of oil production?

Point out to me *other* compounds, materials, that should have congregated/aggregated the same way as carbon-based materials did owing to surface based life activity -

- or is there some peculiar property of carbon and carbon-based compounds that make it 'unique' in congragating such that no other materials 'coalesce' the way that carbon/carbon-compounds do.

Bottom line: why are desposits of other minerals/metals/compounds found in veins, obstensibly owing to thermal difraction processes as the earth cooled, BUT, carbon compounds, listening to the great many folks, did not?

Currently the market is very volitile.

Nothing short of gambling. Play the short term oil futures market == play roulette. You realize futures markets are by their nature a zero sum game, for each winner there is a loser. It would be hard (but not impossible) to move those markets, they are thickly traded.

Are you disputing OPEC is pumping oil at near capacity?

I know lots of people in the energy industry (mostly power generation which doe'nt burn much oil).

Are you saying you think the recent oil price spikes are a result of market manipulation I'd like to hear your theory of how it's being accomplished.

It's the same old running out of oil line from the same old crowd. How come these guys sidestep natural gas?

Another question. Since it's creation what has the federal bureaucracy, The U.S. Department of Energy really done for the American people in terms of developing oil reserves within U.S. territory?

(BBC-News)With an estimated 65% of proven global oil reserves the world relies on the Middle East for its oil. The US imports about 25% of its oil from the region, while the Asia Pacific region derives 67% of its supplies from the Middle East, according to the International Energy Agency (IEA).

One other point, there would be a lot more crude oil flowing out of Iraq, if OPEC Iran's mullahs would stop sending their goons into Iraq to keep the Iraqi oil infrastructure in disarray. Solution, overthrow the mullah régime in Tehran.

"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?"

I would agree with that if it was abrupt, but it will be gradual. $50 a barrel appears to be the break point for a lot of alternate sources of energy to be competitive with oil. So the alternate sources will enter the picture and oil will stabilize right around the break point ($50 is too nice a round number for me to believe it, but no matter, whatever number is, that is the impetus for things like solar to move in and keep it at that number.)

Plus, as alternate sources move in, it will be like the electronics industry. The "beta" buyers with lots of disposable income buy into the new technology and the price starts down. That will cause more to buy and the price will continue down. Plus the technology will improve and be more efficient and continue to drive prices down. Oil will be stuck at or near the break point and may even go down to stay competitive as its market share diminishes.

Which is why big oil will be in earnest to find more oil and keep the price down. It has had a good ride because oil was cheap and actually below cost when inflation is figured in. Now it is at a more realistic cost, and now competition has an incentive.

I follow solar power to a degree, and the latest is solar roof shingles. Your entire roof will be a collector. In about 5 years I might go that way, since the roof will be ready then. All depends on the price of oil!

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