- The Washington Times - Sunday, September 18, 2005

VIENNA, Austria - Fact: World oil production will peak someday, and supplies will start running out. But when will the tipping point come — in years, decades or a couple of months from now?

The oil industry says crude will be plentiful for at least another generation. But some specialists argue that reserves are overstated, oil technologies are limited, and demand — sharply boosted by the needs of China and India — could soon outpace supply.

European Union finance ministers are asking the Organization of Petroleum Exporting Countries (OPEC) to ramp up production when the Saudi-led cartel meets today in Vienna — despite the failure of similar boosts in the past year and a half.

Skeptics say that move won’t work.

“World oil production is going to peak on Thanksgiving, with a three-week period of uncertainty on each side,” said Princeton professor, geologist and oil maverick Kenneth S. Deffeyes. He uses a formula first developed to pinpoint with near accuracy 1971 as the start of oil production decline in the United States.

Once supply begins to dwindle, the years to follow will see shortages that at best will cause “global recession, possibly worse than the 1930s Great Depression,” Mr. Deffeyes said. At worst, he warns, “war, famine, pestilence and death” will ensue.

His prediction is clearly controversial. Still, it is gaining an audience, and dozens of energy experts and academics say his arguments have merit.

With supply already barely matching demand and prices high and rising, the U.S. oil giant Chevron Corp. has begun running ads announcing that “the era of easy oil is over.” And normally skeptical organizations are voicing concern.

“The world has never faced a problem like this,” said a report prepared this year for the U.S. Department of Energy’s National Technology Laboratory. Although oil companies have searched intensively for new oil finds, “results have been disappointing,” said the report from Science Applications International Corp. (SAIC), which focuses on security and energy concerns.

“Oil peaking will be abrupt and revolutionary,” the SAIC report said.

Still, oil companies and governments are betting — at least in public — that new discoveries and technology will keep the world supplied for at least the next generation. And there are those who would welcome the tipping point, believing that the psychological impact will push the world into a serious drive to wean itself off oil.

The U.S. Geological Survey has predicted that a peak in recoverable oil production won’t come until 2037, and Saudi Oil Minister Ali Naimi, in a recent speech to industry experts, declared that “technological innovation will allow us to find and extract more oil around the world.”

But past comments by present leaders reflect high-level awareness of the problem.

In a speech six years ago, before he became U.S. vice president, Dick Cheney talked about estimates of 2 percent annual growth in global oil demand and, at best, a 3 percent annual decline in output from existing reserves.

More recent predictions also focus on high demand and lagging resupply.

Kenji Kobayashi of the global watchdog International Energy Agency wrote this year that global energy demand will grow by nearly 60 percent by 2030 and that oil will remain the fuel of choice. He urged more exploration and exploitation efforts, noting a worrisome drop in oil discoveries in recent years.

Proponents of plentiful oil disagree, saying the world’s proven reserves amount to 1,277 billion barrels and expected technological advances will soon open up supplies now impossible or unprofitable to exploit.

That, they argue, gives the world a decades-thick cushion to develop other energy sources.

“There will be an increase of production for the next 20 to 25 years. Only after that may we face a decline,” said Helmut Langanger, head of exploration and production at Austria’s OMV oil company.

Wrong, say the critics: As oil need and the pace of production grow, the rate of reserves will diminish.

More worrisome are claims of inflated reporting by the Saudis, Iran and most other OPEC members whose national oil companies are not subject to audits and other controls. Even firms such as Shell Group and Chevron are thought to base their proven reserve figures in the Middle East in part on unchecked numbers provided by OPEC member-state companies.

OPEC nations deny padding their figures, but even governments are becoming openly skeptical.

British Treasury chief Gordon Brown urged OPEC members last Tuesday to “become more open and transparent” about how much oil they really have and how they plan to develop it.

Energy expert Matthew Simmons said that except for Libya, Algeria and Nigeria, OPEC countries tripled their reserve numbers in the 1980s with no supporting data.

Mr. Simmons, who advised George W. Bush’s 2000 presidential campaign, says most OPEC nations were involved in a “proven-reserves arms race” — overstating recoverable stocks because the organization assigns production quotas according to each country’s reserves.

In reality, Saudi reserves are probably closer to what they said they had 25 years ago, and the same goes for most other OPEC nations, Mr. Simmons said. Middle East proven reserves are very likely only a third of the estimated 700 billion barrels being claimed, he said.

Mr. Simmons, whose Houston-based Simmons & Company International investment firm guides companies in energy-related acquisitions, is also dismissive of claims that improved technology will increase oil recovery from reserves. He points to the story of North Sea oil, whose production peaked six years ago, despite all-out industry attempts to tap unexploitable reserves through new means.

So when is oil going to peak? Mr. Simmons won’t go as far as Mr. Deffeyes and his Thanksgiving projection. Still, he points to the world’s present huge appetite for crude oil and says the decline may begin sooner than some think, but will stretch over decades before the last barrel is used up.

“The difference between peak oil happening and [oil] running out completely is the difference between me saying ‘I’m getting slightly hungry’ and ‘I’m starving to death,”’ he said.


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