Thanksgiving marked the day that some analysts thought global oil production would have reached its peak, ushering in a new era of fuel shortages.
These petro-pessimists were using the same formula as the one that accurately predicted the apex of U.S. oil production in 1970.
Matthew Simmons, author of “Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy,” is one of them. He thinks Saudi Arabia has pumped much of its usable reserves and will start to experience production declines.
Even analysts who are more optimistic warn that chronically high prices and occasional supply crunches are likely in the years ahead. The world’s consumers are using up nearly all the oil being produced today, and the outlook for growth of supplies is uncertain.
“In terms of prices, I think the risk is … it’s going to explode,” Fatih Birol, chief economist at the International Energy Agency, told the Council on Foreign Relations in New York last week.
Mr. Birol thinks plenty of cheap oil remains to be discovered, but it lies mostly in politically volatile nations of the Middle East. He is hopeful that those countries will spend the billions of dollars needed to increase their supplies and satisfy the growing appetite for fuel.
“The bulk of the growth needs to come from very few … countries in the future, namely Saudi Arabia, Iran, Iraq, Kuwait” and the United Arab Emirates — the countries where the lion’s share of the world’s remaining oil reserves lie, he said.
Two of the top four producers — Iraq and Iran — are not expected to increase supplies any time soon.
Persistent sabotage of oil facilities in Iraq has cut production below the 2.5 million barrels per day produced before the U.S. invasion in March 2003. Meanwhile, a U.S.-led economic embargo has reduced investment in new oil facilities in Iran.
Saudi Arabia, the largest producer with the biggest reserves, plans to increase production to 12.5 million barrels a day from about 11 million today. Smaller Persian Gulf states also seek to expand output.
Mr. Birol said he is not sure these increases will satisfy rising world demand, especially as oil consumption grows rapidly in China, India and other developing nations.
The United States, the world’s biggest consumer, has done little to increase the fuel efficiency of its auto fleet, Mr. Birol said, and efforts to curb demand in other major consuming countries also has been elusive. This puts consuming countries on a collision course with supplier nations, he said.
Consumers are becoming more resistant to higher oil prices, he said, because they are increasingly dependent on cars, airplanes and other forms of petroleum-fueled transportation.
“There are no easy and economic alternatives,” he said. “This is a new era from the consuming countries’ point of view.”
Mr. Birol said the share of oil from the Middle East will increase to 44 percent from 35 percent by 2030 if countries in the region make all the investments needed to increase supplies.
He thinks Saudi Arabia, in particular, can boost production to 18 million barrels a day by 2030 to meet a projected world demand of 120 million barrels a day. Demand today is 82 million barrels.
U.S. Energy Secretary Samuel W. Bodman expressed confidence this week that the Saudis can supply the world with the oil it needs.
But some oil analysts question whether Saudi Arabia has the massive reserves of more than 263 billion barrels that it proclaims.
Speculation that the world is reaching “Hubbert’s peak,” named after a Shell geologist who correctly predicted in 1956 that U.S. oil production would crest in 1970, has been fueling the “energy bulls” on Wall Street and bolstering oil prices for the past two years, said Bill Miller, investment strategist at Legg Mason Wood Walker Inc.
“Production has peaked in the U.S., so it is not far-fetched to believe it may be about to globally,” he said.But Mr. Miller remains skeptical, partly because of resistance from consumers and businesses when the price of premium crude exceeds $55 per barrel.
“Market forces are at work to curtail demand and increase supply,” he said.
Cambridge Energy Research Associates also rejects dire predictions about the end of the oil era. Suppliers are ramping up to meet and even exceed demand through 2010, and technologies will bring new oil sources to light, the energy forecaster says.