Are Global Oil
Supplies
About To Peak?
By George Monbiot
28 September, 2005
The Guardian
Are global oil supplies about to peak?
Are they, in other words, about to reach their maximum and then go into
decline? There is a simple answer to this question: no one has the faintest
idea.
Consider these two
statements: 1. "Last year Saudi Aramco made credible claims that
as much as 500bn-700bn barrels remain to be discovered in the kingdom."
2. "Saudi Arabia clearly seems to be nearing or at its peak output
and cannot materially grow its oil production."
The first comes
from a report by Energy Intelligence, a consultancy used by the major
oil companies. The second comes from a book by Matthew Simmons, an energy
investor who advises the Bush administration. Whom should we believe?
I have now read 4,000 pages of reports on global oil supply, and I know
less about it than I did before I started. The only firm conclusion
I have reached is that the people sitting on the world's reserves are
liars.
In 1985 Kuwait announced
that it possessed 50% more oil than it had previously declared. Had
it just discovered a new field? Had it developed a new technology that
could extract more oil from the old fields? No. OPEC, the price-fixing
cartel to which it belongs, had decided to allocate production quotas
to its members based on the size of their reserves. The bigger your
stated reserve, the more you were allowed to produce. The other states
soon followed Kuwait, adding a total of 300bn barrels to their reserves:
enough, if it existed, to supply the world for 10 years. And their magic
oil never runs out. Though extraction has long outstripped discovery,
Kuwait posts the same reserves today as it claimed in 1985.
So we turn to the
US Geological Survey for an answer, and find that its estimates of global
oil supply are as reliable as the Pentagon's assessments of Iraqi weapons
of mass destruction. In 1981 it said we possessed 1,719bn barrels of
oil. In 2000, 2,659. Yet the discovery of major oilfields peaked in
1964. Where has it come from?
It is true to say
that oil reserves are not fixed. As technology improves or the price
increases, oil that was formerly too expensive to extract becomes available.
But the oil geologist Jean Laherrère points out that the survey's
estimate "implies a five-fold increase in discovery rate and reserve
addition, for which no evidence is presented. Such an improvement in
performance is in fact utterly implausible, given the great technological
achievements of the industry over the past 20 years, the worldwide search,
and the deliberate effort to find the largest remaining prospects."
The current high
oil prices are the result of a shortage of refineries - exacerbated
by the hurricanes in the Gulf of Mexico - rather than a global shortage
of crude. But behind that problem lurks another. Last week Chris Vernon
of the organization PowerSwitch published figures showing that while
total global oil production has risen since 2000, the production of
light sweet crude - the kind that is easiest to refine into motor fuels
- has fallen, by 2m barrels a day. This grade, he claims, has already
peaked. The refinery crisis results partly from this constraint: there
aren't enough plants capable of processing the heavier grades.
And next in the
queue? Who knows? All I can say is that George Bush himself does not
appear to share the US Geological Survey's optimism. "In terms
of world supply," he said in March, "I think if you look at
all the statistics, demand is outracing supply, and supplies are getting
tight." What has he seen that we haven't?
If the figures have
been fudged, we're stuffed. That might sound extreme, but it is not
my conclusion. It is that of the consultants hired by the US department
of energy. In February this year the department released a report called
Peaking of World Oil Production: Impacts, Mitigation and Risk Management.
I say "released", for it was never properly published. For
several months the only publicly available copy was lodged on the website
of the Hilltop high school in Chula Vista, California.
The department's
consultants, led by the energy analyst Robert L Hirsch, concluded that
"without timely mitigation, the economic, social and political
costs will be unprecedented". It is possible to reduce demand and
to start developing alternatives, but this would take "10-20 years"
and "trillions of dollars". "Waiting until world oil
production peaks before taking crash program action leaves the world
with a significant liquid fuel deficit for more than two decades",
which would cause problems "unlike any yet faced by modern industrial
society".
Of course, we have
been here before. Oil analysts and environmentalists have warned of
disappearing reserves ever since drilling began, and they have always
been proved wrong. According to people such as the Danish statistician
Bjorn Lomborg, this is because the industry is self-regulating. "High
real prices deter consumption and encourage the development of other
sources of oil and non-oil energy supplies," he says. "Since
searching costs money, new searches will not be initiated too far in
advance of production. Consequently, new oilfields will be continuously
added as demand rises ... we will stop using oil when other energy technologies
provide superior benefits."
It is beginning
to look as if he is wrong on all counts. As the Economist magazine pointed
out on September 10, "demand for petrol is pretty inelastic in
the short term", because people still have to go to work, however
much it costs. According to the analyst it cites, "it would take
a doubling of petrol prices to reduce American petrol consumption by
just 5%".
Lomborg's idea that
companies can just go out and find new oil when demand rises suggests
that he believes geology is as malleable as statistics. One day - or
so we should hope - a superior technology will certainly emerge, but
cheap alternatives to liquid fuels are currently decades away. Yes,
the pessimists have been crying wolf for almost a century. But better
that, perhaps, than crying "sheep" when the wolves appear.
The Hirsch report
has no truck with those who believe in the magic of the markets. "High
prices do not a priori lead to greater production. Geology is ultimately
the limiting factor." There are plenty of oil shales, tar sands
and coal seams available for turning into liquid fuels, but it would
take years and a massive investment before enough came online. Hirsch
compares the projections of the oil optimists to those of the gas optimists
in the late 1990s, who promised "growing supply at reasonable prices
for the foreseeable future" in the US and Canada. Today the same
people are bemoaning the deficit. "The North American natural gas
market is set for the longest period of sustained high prices in its
history, even adjusting for inflation ... Gas production in the United
States (excluding Alaska) now appears to be in permanent decline."
"The bottom
line," Hirsch says, "is that no one knows with certainty when
world oil production will reach a peak, but geologists have no doubt
that it will happen." Our hopes of a soft landing rest on just
two propositions: that the oil producers' figures are correct, and that
governments act before they have to. I hope that reassures you.
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