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ECONOMICS -
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Oil's Peak: The End May Be Nearer, It Seems

Posted in the database on Saturday, August 27th, 2005 @ 18:51:34 MST (1914 views)
from Startribune.com  

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Until recently, opinion on the future of world oil supplies was dominated by two views. One group of experts held that production would decline fairly soon, within a couple of decades at most. Another group argued that the crude would keep flowing for generations, thanks to ever-advancing detection and drilling technologies.

Either way, the scenario was for a gradual and orderly transition to fuels of the future. Now a third perspective is gaining both popular attention and professional respect -- the notion that oil's decline will be sharp and uncontrolled, following a peak that may be more or less at hand.

This "peak oil" theory is neither new -- some geologists think the world has already passed the high point of recoverable reserves -- nor universally accepted. But it is gaining ground as world demand surges, especially in China and India, and as the most important supplier shows signs of strain.

Pretty much everything about Saudi Arabia's oil reserves and production rates is a state secret. This leaves its customers to rely on promises and assurances that can't be checked, from officials whose self-interest can't be ignored.

But one American petroleum expert and industry consultant, Matthew Simmons, sifted through a couple of hundred obscure engineering papers and found clear signs of trouble at Ghawar, the biggest oil field in Saudi Arabia and, so far, the world.

Simmons thinks the Saudis are about to hit their peak production, if they haven't already. This is horrible news for a global oil economy that is relying on Saudi promises to boost production from 10 million barrels a day currently to 12.5 million by 2009 and then 15 million within several years. And, as an article by Peter Maass in last Sunday's New York Times Magazine noted, Simmons is not alone in challenging those pledges -- even some in Saudi Arabia have their doubts.

A recently retired top manager in the Saudi oil enterprise told Maass that 15 million barrels a day might not be sustainable, and that U.S. government forecasts of 22.5 million barrels by 2025 can't possibly be met. Anyway, the Saudi said, the problem isn't how slowly his countrymen boost production, it's how quickly consumption is growing. The global appetite has been swelling by at least 2 billion barrels a year, a pace that would require bringing two new Saudi Arabias on line every decade.

Back in Washington, a study commissioned by the U.S. government's National Energy Technology Laboratory found no reason to "expect that exploration success will dramatically improve in the future." The world is moving into an era in which, experts found, new reserves are more than offset by growing demand -- "one of a number of trends that suggest the world is fast approaching the inevitable peaking of conventional world oil production."

What would that peak be like? Obviously it would be catastrophic if the flow of petroleum products came to a sudden halt, or even if supplies remained steady but prices climbed to double or triple today's levels. Economies would stagger; some would collapse. Famines and mass migrations would ensue. Wars have been fought over much less.

Because it's the nature of oil fields to go into steep declines after reaching their peak, this clearly is not a problem that can be solved -- or perhaps even postponed -- by drilling new wells. Sooner or later, the United States and every other industrial nation will have to make the switch from oil to renewable alternatives. The advantage will belong to those who act soonest to develop the fuels and technologies of the future.

Just now, the sky-high gas prices are making biofuels more competitive. But even if they were to recede tomorrow to the levels of the early 1990s, there would still be cause for the U.S. government, U.S. companies and U.S. citizens to invest far more aggressively in the necessities of a post-petroleum era -- which may be arriving sooner than we like to think.



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