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No one knows when oil production will start declining, but we must
focus on alternatives to petroleum now.
As oil prices soared from $24 per barrel in early 2003 to a peak of $70 per
barrel in September 2005, the question being asked by experts and policy makers
alike was whether we've "entered a new era," as Chevron Corporation
CEO David O'Reilly has said, or just encountered a temporary glitch that will
be corrected by market forces, as ExxonMobil President Rex Tillerson argued
in a speech to the World Petroleum Congress last September. The most intriguing
thing about this raging debate over whether oil production will soon peak --
and put an end to the go-go days of the petroleum age -- is that it's occurring
at all. The fact that a century into the age of oil, and with the global economy
dependent on $3 trillion worth of this black liquid each year, we don't know
how much is left, is extraordinary.
It turns out that most of the forecasters who are responsible for the long-term
energy projections on which private and public decision makers rely -- from
Wal-Mart to the International Energy Agency -- have been on automatic pilot,
assuming that whatever the future level of demand, the oil companies will be
able to extract sufficient oil to meet it. You don't have to be a card-carrying
member of the "peak oil" school that has gathered behind former Shell
geologist Colin Campbell to see that this is a dangerous assumption.
One fact is undeniable: over the past decade, oil production has been falling
in 33 of the world's 48 largest oil producing countries, including 6 of the
11 members of OPEC. In the continental United States, the world's oil pioneer,
production peaked 35 years ago at 8 million barrels per day, falling to less
than 3 million barrels per day now. Among the other major oil-producing countries
where production is declining are the United Kingdom and Indonesia. Those who
take a more sanguine view of the global oil prospect point to the 1.1 trillion
barrels of "proven" reserves that are currently on the books of the
world's oil companies -- equivalent to all the oil extracted over the past century,
or more than 40 years of consumption at the current rate. Although those same
figures appear in most official oil reports, it turns out that roughly three-quarters
of the world's oil is controlled by state-owned companies, whose reserve figures
are never audited and are based as much on politics as on geology. Many countries
have added paper barrels to their reserves at times they weren't even looking
for oil.
Since oil can't be extracted unless it is found, one of the most persuasive
arguments that oil production is nearing its peak is that oil extraction has
exceeded discoveries by a factor of three during the past two decades. This
is clearly a trend that cannot continue. PFC Energy, an oil industry consulting
firm, has recently analyzed these figures and concluded that non-OPEC oil production
will peak within five years, and that OPEC production could peak within another
five years. Chevron Corporation is among those that have argued that nearly
half the world's exploitable oil has already been extracted.
The largest wild card facing the future of oil is the Middle East, where highly
secretive state-owned companies have kept silent on the condition of their vast
oil fields for the last 30 years. Contrary to the popular myth that their oil
resources are so vast as to flow freely from the Earth wherever a hole is punched,
papers published by Saudi engineers indicate that massive water injection and
other forms of secondary recovery are now needed to keep the oil flowing. A
handful of 30 to 50-year-old oil fields supplies most of the nearly 10 million
barrels of oil that Saudi Arabia produces each day, and hardly any new fields
have been discovered in the last two decades. Late last year, U.S. intelligence
analysts questioned whether Saudi Arabia can even meet its near-term pledge
to raise production modestly, let alone achieve the massive increases that many
oil-consuming countries appear to be counting on.
Those who live by the crystal ball often end up eating ground glass, so I won't
join those in the peak oil school who have predicted which month world oil production
will peak. But there's one conclusion on which I'm ready to stake my reputation:
the current path -- continually expanding our use of oil on the assumption that
the Earth will yield whatever quantity we need -- is irresponsible and reckless.
The first step in getting off that path is to agree that far greater transparency
is needed on the part of oil-exporting companies and governments. Just as commercial
aircraft cannot land at international airports unless they meet accepted safety
standards, and companies must meet accounting standards to be listed on stock
exchanges, those who sell oil internationally should have their reserves regularly
monitored by outside experts -- as is already required of the large private
companies such as ExxonMobil and Shell.
On the question of what can be done to reduce dependence on oil, I part company
with some of the peak oil advocates -- particularly those with an apocalyptic
bent who are predicting an end to civilization as we know it. While it is undeniable
that oil is central to the modern economy and that a peak in oil production
would be a shock, human societies have created new energy systems before. And
if we have to, we will do so again.
The same technological revolution that created the Internet and so many other
21st-century wonders can be used to efficiently harness the world's vast supplies
of wind, biomass, and other forms of solar energy -- which are 6,000 times greater
on an annual basis than the fossil resources we now rely on. Technologies such
as solar cells, fuel cells, biorefineries, and wind turbines are in about the
same place today that the internal combustion engine and electromagnetic generator
occupied in 1905. These key enabling technologies have already been developed
and commercialized, but they are just now entering the world's largest energy
markets.
Thanks to a potent combination of advancing technology and new government policies,
those markets are now shifting. Since 2000, world biofuels production has grown
at an 18-percent annual rate, wind power at 28 percent per year, and solar power
at 32 percent per year. During the same period, the use of oil has grown at
less than 2 percent annually. Roughly $30 billion was invested in advanced biofuels,
giant wind farms, solar manufacturing plants, and other technologies in 2004,
attracting companies such as General Electric and Shell to the fastest growing
segment of the global energy business.
As with everything from automobiles to cell phones, mass production is driving
down the cost of renewable energy, which is beginning to attract the same kind
of buzz that surrounded John D. Rockefeller's feverish expansion of the oil
industry in the 1880s -- or Bill Gates's early moves in the software business
in the 1980s. Indeed, in the last year, new energy technologies have been almost
as popular with Silicon Valley venture capitalists as the latest Internet software.
These "new renewables" now provide just 2 percent of the world's energy,
but as the computer industry discovered decades ago, double-digit growth rates
can rapidly turn a tiny sector into a giant. Brazil already gets over 40 percent
of its light transportation fuel from ethanol derived from sugar cane, and studies
in the United States indicate that this largest of all oil consumers could grow
well over half its liquid fuels using advanced new technologies that are expected
to be commercialized in the next decade.
None of this is to say that the transition away from oil will be easy. Energy
prices are likely to rollercoaster in the years ahead, disrupting the world
economy, and making it difficult to smoothly plan the development of alternatives.
But crises often create opportunities, and the potential rewards from an energy
transition are substantial indeed: creating whole new industries, particularly
in developing countries; reviving agricultural markets and strengthening rural
economies; and pinching off the money pipeline that is destabilizing the Middle
East.
But there is another danger surrounding a potential peak in world oil production:
the impact on global warming. Some have argued that a forced march away from
oil will push the world economy into dependence on fuels that add even more
carbon dioxide pollution to the atmosphere: oil shale, tar sands, and coal,
all of which are extremely abundant -- and dirty.
That danger is real. High oil prices make it more economical to turn these
carbon-based fuels into liquids, and if they receive heavy subsidies while the
cleaner alternatives are starved, we may be facing an ecological crisis as well
as an economic one. On the other hand, if rising oil prices give a serious boost
to investment in energy efficiency, public transportation, biofuels, and other
renewable energy sources, they could jumpstart the energy transition that is
needed to solve the climate emergency now facing the world.
One point is inarguable: a century after the oil age began in earnest, humanity
faces an historic test. Human ingenuity is one resource that won't peak -- but
whether it can be mobilized quickly enough to surmount these challenges is not
yet clear.
Christopher Flavin is President of the Worldwatch
Institute