[Vision2020] Fwd: Earth Policy News - The Coming Decline of Oil

[Tom Trail]

>Visionaires--this article may be of interest to you.


Tom Trail

>Plan B Book Byte 2006-6
>For Immediate Release
>May 5, 2006
>
>THE COMING DECLINE OF OIL
>http://www.earthpolicy.org/Books/Seg/PB2ch02_ss2.htm
>
>Lester R. Brown
>
>
>When the price of oil climbed above $50 a barrel in late 2004, public
>attention began to focus on the adequacy of world oil supplies—and
>specifically on when production would peak and begin to decline. Analysts
>are far from a consensus on this issue, but several prominent ones now
>believe that the oil peak is imminent.
>
>Oil has shaped our twenty-first century civilization, affecting every
>facet of the economy from the mechanization of agriculture to jet air
>travel. When production turns downward, it will be a seismic economic
>event, creating a world unlike any we have known during our lifetimes.
>Indeed, when historians write about this period in history, they may well
>distinguish between before peak oil (BPO) and after peak oil (APO).
>
>The oil prospect can be analyzed in several different ways. Oil companies,
>oil consulting firms, and national governments rely heavily on computer
>models to project future oil production and prices. One approach—use of
>the reserves/production relationship to gain a sense of future production
>trends—was pioneered several decades ago by the legendary King Hubbert, a
>geologist with the U.S. Geological Survey. Given the nature of oil
>production, Hubbert theorized that the time lag between the peaking of new
>discoveries and the peaking of production was predictable. Noting that the
>discovery of new reserves in the United States had peaked around 1930, he
>predicted that U.S. oil production would peak in 1970. He hit it right on
>the head.
>
>A second approach, separating the world’s principal oil-producing
>countries into two groups—those where production is falling and those
>where it is still rising—is illuminating. Of the 23 leading oil producers,
>output appears to have peaked in 15 and to still be rising in eight. The
>post-peak countries range from the United States (the only country other
>than Saudi Arabia to ever pump more than 9 million barrels of oil per day)
>and Venezuela (where oil production peaked in 1970) to the two North Sea
>oil producers, the United Kingdom and Norway, where production peaked in
>1999 and 2000 respectively. U.S. oil output, which peaked at 9.6 million
>barrels a day in 1970, dropped to 5.4 million barrels a day in 2004—a fall
>of 44 percent. Venezuela’s output has dropped 31 percent since 1970.
>
>The eight pre-peak countries are dominated by the world’s leading oil
>producers, Saudi Arabia and Russia, producing roughly 11 million and 9
>million barrels of oil a day in the fall of 2005. Other countries with
>substantial potential for increasing production are Canada, largely
>because of its tar sands, and Kazakhstan, which is still developing its
>oil resources. The other four pre-peak countries are Algeria, Angola,
>China, and Mexico.
>
>The biggest question mark among these eight countries is Saudi Arabia. Its
>production technically peaked in 1980 at 9.9 million barrels a day and
>output is now nearly 1 million barrels a day below that. It is included as
>a country with rising production only on the basis of statements by Saudi
>officials that the country could produce far more. However, some analysts
>doubt whether the Saudis can raise output much beyond its current
>production. Some of its older oil fields are largely depleted, and it
>remains to be seen whether pumping from new fields will be sufficient to
>more than offset the loss from the old ones.
>
>This analysis comes down to whether production will actually increase
>enough in the eight pre-peak countries to offset the declines under way in
>the 15 countries where production has already peaked. In volume of output,
>the two groups have essentially the same total production capacity. If
>production begins to fall in any one of the eight, however, world output
>could decline.
>
>A third way to consider oil production prospects is to look at the actions
>of the major oil companies themselves. While some CEOs sound very bullish
>about the growth of future production, their actions suggest a less
>confident outlook.
>
>One bit of evidence of this is the decision by leading oil companies to
>invest heavily in buying up their own stocks. ExxonMobil, for example,
>with the largest quarterly profit of any company on record—$8.4 billion in
>the last quarter of 2004—invested nearly $10 billion in buying back its
>own stock. ChevronTexaco used $2.5 billion of its profits to buy back
>stock. With little new oil to be discovered and world oil demand growing
>fast, companies appear to be realizing that their reserves will become
>even more valuable in the future.
>
>Closely related to this behavior is the lack of any substantial increases
>in exploration and development in 2005 even with oil prices well above $50
>a barrel. This suggests that the companies agree with petroleum geologists
>who say that 95 percent of all the oil in the world has already been
>discovered. “The whole world has now been seismically searched and picked
>over,” says independent geologist Colin Campbell. “Geological knowledge
>has improved enormously in the past 30 years and it is almost
>inconceivable now that major fields remain to be found.” This also implies
>that it may take a lot of costly exploration and drilling to find that
>remaining 5 percent.
>
>This shrinkage of reserves is strikingly evident in the ratio between new
>oil discoveries and production of the major oil companies. Among those
>reporting that their 2004 oil production greatly exceeded new discoveries
>were Royal Dutch/Shell, ChevronTexaco, and Conoco-Phillips. On a global
>scale, geologist Walter Youngquist, author of GeoDestinies: The Inevitable
>Control of Earth Resources Over Nations and Individuals, notes that in
>2004 the world produced 30.5 billion barrels of oil but discovered only
>7.5 billion barrels of new oil.
>
>The influence on oil production in the years immediately ahead that is
>most difficult to measure is the emergence of what I call a “depletion
>psychology.” Once oil companies or oil-exporting countries realize that
>output is about to peak, they will begin to think seriously about how to
>stretch out their remaining reserves. As it becomes clear that even a
>moderate cut in production may double world oil prices, the long-term
>value of their oil will become much clearer.
>
>The geological evidence suggests that world oil production will be peaking
>sooner rather than later. Matt Simmons, head of the oil investment bank
>Simmons and Company International and an industry leader, says in
>reference to new oil fields: “We’ve run out of good projects. This is not
>a money issue
if these oil companies had fantastic projects, they’d be out
>there [developing new fields].” Kenneth Deffeyes, a highly respected
>geologist and former oil industry employee now at Princeton University,
>says in his 2005 book, Beyond Oil, “It is my opinion that the peak will
>occur in late 2005 or in the first few months of 2006.” Walter Youngquist
>and A.M. Samsan Bakhtiari of the Iranian National Oil Company both project
>that oil will peak in 2007.
>
>Sadad al-Husseini, recently retired as head of exploration and production
>at Aramco, the Saudi national oil company, notes that new oil output
>coming on-line had to be sufficient to cover both annual growth in world
>demand of at least 2 million barrels a day and the annual decline in
>production from existing fields of over 4 million barrels a day. “That’s
>like a whole new Saudi Arabia every couple of years,” Husseini said. “It’s
>not sustainable.”
>
>
>#     #     #
>
>NOTE: On Monday, May 8, at 1:00 pm, Lester Brown will speak in Washington,
>DC, at Peak Oil and the Environment: the 2006 Sustainable Energy Forum.
>Other speakers include Herman Daly, Kenneth Deffeyes, James Hansen, and
>Bill McKibben. See www.beyondpeak.org for more information.
>
>
>This piece is adapted from Chapter 2, “Beyond the Oil Peak,” in Lester R.
>Brown, Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in
>Trouble (New York: W.W. Norton & Company, 2006), available on-line at
>www.earthpolicy.org/Books/PB2/index.htm.
>
>Additional data and information sources at www.earthpolicy.org or contact
>jlarsen (at) earthpolicy.org
>For reprint permissions contact rjkauffman (at) earthpolicy.org
>
>
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-- 
Dr. Tom Trail
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