Do
Oil Reserves Foretell
Bleak Future?
By Alejandro
Eggers Moreno
03 April, 2004 by
San Francisco Chronicle
Gasoline
prices have reached their highest mark ever in the United States --
just as oil giant Royal Dutch/Shell has slashed its petroleum reserve
estimates by 20 percent, after a monumental accounting scandal. While
soaring prices at the pump have the public worried about another 1970s-style
oil crisis, waiting in line might ultimately be the least of our concerns.
An increasing number of prominent petroleum geologists -- including
many former oil company employees -- have warned that official estimates
of available global oil reserves are dangerously exaggerated.
They may well be
right. For energy companies such as Shell, proven oil and gas reserves
are their primary indicator of economic health. They have every incentive
to boost reserve estimates; the more oil they can claim, the more competitive
and attractive to shareholders they appear. But private companies are
not the only ones with an incentive to inflate estimates. In the mid
1980s, OPEC decided to factor in member states' reserves when determining
their market share. Global oil reserves jumped overnight. Today, the
more oil a country can claim -- the methods each uses to determine this
are a closely guarded secret -- the more influence it has on the global
energy scene.
As a result, say
the geologists, there may be considerably less oil in the world than
the oil-producing countries and energy companies claim, and global oil
production could peak far sooner than expected -- some predict as early
as 2010. Once that happens, getting at the remaining oil becomes increasingly
difficult and expensive. For an economy still reliant on fossil fuels,
the effects would be catastrophic. As the oil supply shrinks, essential
petroleum-dependent products (that is, nearly everything in modern society,
from transportation to electricity to basic foodstuffs) are rendered
either unavailable or unaffordable. Eventually, as companies such as
Shell employ even more complex and invasive drilling techniques, the
energy required to extract a barrel of oil exceeds the amount it can
generate, and oil ceases altogether to be an energy source.
Of course, all major
players in the oil business -- private and public -- insist that there
will be enough oil to last well through the 21st century. But given
their incentive to inflate reserve totals, it would be irresponsible
not to question their estimates. The official figures -- that is, those
cited by oil companies to prove their product is secure -- are notoriously
unreliable. For example, in 2002 the U.S. Geological Survey claimed
that total U.S. oil production would eventually reach 362 billion barrels.
This calculation far surpasses most independent estimates, which place
the figure closer to 200 billion; furthermore, it would require new
American discoveries to equal the total reserves of Kuwait. The USGS
itself admits its figures are "based on nontechnical considerations
that support domestic supply growth to the levels necessary to meet
domestic demand levels. " In other words, it determines supply
estimates not by how much oil is left, but by guessing how much people
will ultimately want.
Compounding the
problem, most governments and all major energy companies insist that
an oil shortage -- and thus the point at which the world needs to find
an alternative energy source -- will occur only when the final drop
is pumped from the ground. It does not take a petroleum geologist to
surmise that demand will outpace supply (resulting in a global energy
crisis) long before the last bit of oil is gone.
The optimistic oil-reserve
estimates also fail to consider the rising global energy demand, particularly
among developing nations. China itself could render the figures obsolete:
Chinese oil imports rose by 30 percent last year, according to China's
Ministry of Commerce, and the country's energy demand is expected to
grow significantly in the next 25 years. Despite the extra oil -- as
well as millions of tons in increased domestic coal production -- China
already has begun to suffer from an energy shortage, which the government
expects to worsen in many east coast provinces. To put the size of China's
energy problem in scale, in the last two years its electricity use has
increased by an amount equal to the total power consumption of Brazil,
according to Scott Roberts, chief representative in the Beijing office
of Cambridge Energy Research Associates, a consulting firm based in
Massachusetts.
The consequences
of overestimating the global oil supply would be devastating. In the
best-case scenario, industry would recover by turning to less efficient
and more polluting fuels, accelerating the already noticeable effects
of global warming. Worst case would be a total economic collapse, with
today's rising gas prices in the United States and sporadic blackouts
across China merely the mildest previews of what is to come.
Granted, it is quite
possible that there will never be an oil shortage, that global reserves
are healthy enough to last until well after a replacement energy source
is discovered. But given that those responsible for measuring the supply
have a vested interest in making it appear high, the accuracy of their
estimates cannot be taken for granted. The future of oil may not be
as bright as it seems, both to the energy industry at large and to anyone
who relies on their computer, their car or their planet.
Alejandro Eggers
Moreno is vice president of Strategic Assessments Institute, a consulting
firm in Los Angeles.
©2004 San Francisco
Chronicle