'Running out of oil' is an old fear

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

Yet while the oil reserves of U.S. firms are verified by the U.S. Geological Survey, the Saudis -- like other OPEC countries -- don't allow independent audits of their reservoirs. So when Riyadh says it has 263 billion barrels locked up beneath the desert, the world has to take it at its word.

Simmons didn't. Instead, two years ago, he pulled about 200 technical papers from the files of the Society of Petroleum Engineers and performed his own assessment. His conclusion: the Saudis are increasingly straining to drag oil out of aging fields and could suffer a "production collapse" at any time.

Yergin is more optimistic both about the Saudis and the industry's prospects in general. If the past is any guide, technological breakthroughs will reshape both demand and supply, he says. In the 1970s, for example, the deepest offshore wells were drilled in 600 feet of water. Today, a Chevron well in the Gulf of Mexico draws oil from 10,011 feet below the surface.

Widespread use of technologies such as remote sensing and automation in "digital oil fields" could boost global oil reserves by 125 billion barrels, CERA says. Already, advanced software and "down hole measurement" devices to track what's happening in the well have elevated recovery rates in some North Sea fields from the industry average of 35 percent to 60 percent, says Jackson.

Technology also won't stand still on the consumption side of the equation, Yergin says. "By 2025 or 2030, we'll probably be moving around in vehicles quite different from the ones we drive today. Maybe we'll be driving around in vehicles that get 110 miles to the gallon," he says.

That's more than a guess. Toyota's 2001-model Prius hybrid got 48 miles per gallon; the 2005 model was up to 55 mpg. If automakers focused solely on energy efficiency, 110 mpg isn't out of the question.

Still, breakthroughs don't just happen, and in the late 1990s, after oil prices fell as low as $12 a barrel, major oil companies slashed research spending. Some who previously doubted the "peak oil" claims now wonder whether the industry is equipped to develop the necessary innovations.

"Before 1998, I was on the side that said, "Technology solves all problems,' " says Roger Anderson of Lamont-Doherty Earth Observatory of Columbia University. "The problem is after $12 oil, oil companies responded by merging and firing large portions of their technical staff."

Now, the International Energy Agency in Paris estimates that $5 trillion in new spending is needed over the next 30 years to improve exploration and production.

The limits of technology

As oil prices -- now around $63 a barrel -- stay elevated, so- called unconventional supplies of oil become economically feasible. Exhibit one: enormous deposits of Canadian oil sands, which could eventually yield more than 170 billion barrels of oil. On the list of the world's biggest oil countries, that total puts the United States' northern neighbor behind only Saudi Arabia.

That's the good news. The bad news is that wringing oil from the sludge-like tar sands is difficult, costly and requires enormous quantities of water and natural gas -- itself an ever-pricier fuel.