'Running out of oil' is an old fear

0 Comments | Deseret News (Salt Lake City), Oct 17, 2005 | by David J. Lynch USA Today

Almost since the dawn of the oil age, people have worried about the taps running dry. So far, the worrywarts have been wrong. Oil men from John D. Rockefeller to T. Boone Pickens always manage to find new gushers.

But now, a vocal minority of experts say world oil production is at or near its peak. Existing wells are tiring. New discoveries have disappointed for a decade. And standard assessments of what remains in the biggest reservoirs in the Middle East, they argue, are little more than guesses.

"There isn't a middle argument. It's a finite resource. The only debate should be over when we peak," says Matthew Simmons, a Houston investment banker and author of a new book that questions Saudi Arabia's oil reserves.

Today's gasoline prices are high because Hurricanes Katrina and Rita disrupted oil production in the Gulf of Mexico. But emergency supplies from strategic oil reserves in the United States and abroad can largely compensate for that temporary shortfall. If the "peak oil" advocates are correct, however, today's transient shortages and high prices will soon become a permanent way of life. Just as individual oil fields inevitably reach a point where it gets harder and more expensive to extract the oil before output declines, global oil production is about to crest, they say. Since 2000, the cost of finding and developing new sources of oil has risen about 15 percent annually, according to the John S. Herold consulting firm.

As global demand rises, American consumers will find themselves in a bidding war with others around the world for scarce oil supplies. That will send prices of gasoline, heating oil and all petroleum-related products soaring.

"The least-bad scenario is a hard landing, global recession worse than the 1930s," says Kenneth Deffeyes, a Princeton University professor emeritus of geosciences. "The worst-case borrows from the Four Horsemen of the Apocalypse: war, famine, pestilence and death."

He's not kidding: Production of pesticides and fertilizers needed to sustain crop yields rely on large quantities of chemicals derived from petroleum. And Stanford University's Amos Nur says China and the United States could "slide into a military conflict" over oil.

Rising demand

There's no question that demand is rising. Last year, global oil consumption jumped 3.5 percent, or 2.8 million barrels a day. The U.S. Energy Information Administration projects demand rising from the current 84 million barrels a day to 103 million barrels by 2015. If China and India -- where cars and factories are proliferating madly -- start consuming oil at just one-half of current U.S. per- capita levels, global demand would jump 96 percent, according to Nur.

Such forecasts put the doom in doomsday. Many in the industry reject the notion that global oil production can't keep up. "This is the fifth time we've run out of oil since the 1880s," scoffs Daniel Yergin, who won a Pulitzer Prize for his 1991 oil industry history "The Prize."

In June, Yergin's consulting firm, Cambridge Energy Research Associates in Cambridge, Mass., concluded that oil supplies would exceed demand through 2010. Plenty of new oil is likely to be found off in the Middle East and off the coasts of Brazil and Nigeria, says Yergin.

"There's a lot more oil out there still to find," says Peter Jackson, a veteran geologist who co-authored the CERA study.

Based on current technology, peak oil production won't occur before 2020, Yergin says. And even if it does, oil production volumes won't plummet immediately; they'll coast for years on an "undulating plateau," he says.

Debate growing sharper

Both sides in the "peak oil" controversy agree that oil is a finite resource and that every year, the world consumes more oil than it discovers. But these are about the only things they agree upon.

As the debate has persisted, it's grown personal. "Peak oil" believers disparage those who disagree as mere "economists" in thrall to the magic of the marketplace or simple-minded "optimists" who assume every new well will score.

Yergin emphasizes that the CERA study was developed by geologists and petroleum engineers, not social scientists. Of Simmons, Yergin says: "He's wonderful at stirring up an argument and slinging around rhetoric. . . . For some of these people, it seems to be a theological issue. For us, it's an analytic issue."

When they're not trading insults, the two sides disagree fiercely over the likelihood of future technology breakthroughs, prospects for so-called unconventional fuel sources such as oil sands and even the state of Saudi Arabia's reserves.

The world's No. 1 oil exporter, in fact, is at the center of Simmons' new book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy", which has reinvigorated the peak oil argument.

Simmons says it's impossible for global production to keep up with surging demand unless the Saudis can increase daily production beyond today's 9.5 million barrels and continue pumping comfortably for decades. And, indeed, Yergin is counting on the Saudis to reach 13 million barrels a day by 2015.