Peering into oil's future
Experts try to predict when the world will start running low on the
natural resource that keeps all the engines running
The world began running out of oil soon after the birth
of modern drilling during the 1850s. The question since then has always
been:
When will the spigot start drying up?
Mounting evidence suggests that an important turning point may be close.
According to several studies, oil production is expected to begin a
permanent decline within a few years, prompting social and economic
upheaval across the globe.
Or maybe not. A rival school of thought says that oil's imminent demise
is exaggerated and that crude will be plentiful into the near future.
Whom can you believe? It all depends on how accurate researchers are
in calculating such complex variables as future oil consumption, production
and discovery.
"One has to be very skeptical about any prediction," said
David Goodstein, author of the recently published book "Out of
Gas: The End of Oil," and a physics professor at California Institute
of Technology in Pasadena.
The numbers that some researchers are relying on "are extremely
undependable" and are being put forth "by companies and countries
that have strong interest in tilting them one way or another,"
Goodstein said.
Worries over falling crude production inevitably arise when fuel prices
spike, as they have recently. Oil futures, at $38.08 per barrel, are
near a 13- year high, while the average price of a gallon of unleaded
gasoline in California hit a record $2.18 earlier this month.
Historically, researchers have been woefully inept at predicting a
permanent decline in global oil production. They have made dire forecasts
since at least the 1920s, only to eat crow as pumping increased.
What researchers are trying to determine is when oil production will
begin to taper off as a natural consequence of dwindling reserves. At
some point, there just won't be enough oil left to keep pumping increasing
amounts from underground, analysts agree.
As it is, global oil production has grown most years since the turn
of the last century. The world produced nearly 67 million barrels of
oil a day in 2002, up 11 percent from a decade earlier, according to
the U.S. Energy Information Administration.
The added crude has fueled economies across the globe, including the
United States, and enabled millions of new drivers to take to the road.
Without the new supplies, oil and gasoline would undoubtedly cost a
lot more.
But the era of abundance is in peril, judging from an important industry
yardstick. More oil is being produced each year than discovered.
It's similar to when you spend more money than you bring in. Unless
the pattern changes, your bank account will eventually run dry.
The trend started in 1986, according to IHS Energy, an energy research
firm based in Houston. The only exception since then was 1991, when
a big field in the Persian Gulf, off the coast of Iran, was discovered.
"There are discoveries being made all the time, but they are smaller
and smaller," said Jim Meyer, director of the Oil Depletion Analysis
Center, a London organization that disseminates information about the
threat of dwindling supplies. "The big fields have all been found,
or at least they're few and far between."
If big reserves are to be found anywhere, they will likely be in the
former Soviet Union and in the polar regions, according to analysts.
Libya, Iran and Iraq, all of which have been largely unexplored in recent
years, are also possibilities.
The ebb and flow of oil production is known as the "Hubbert's
Peak," after M. King Hubbert, a Shell geologist. He gained fame
for correctly predicting in 1956 that U.S. production would peak in
the early 1970s and then decline.
Hubbert's theory is that oil production, when plotted on a chart, is
a bell curve. Production rises quickly as big, cheap-to-operate fields
open. It flattens out as those fields become depleted. New, smaller,
more costly fields can't offset the loss, leading to the curve's inevitable
decline.
Differing dates
Today's generation of oil researchers is applying Hubbert's principles
to global production. They agree that pumping will eventually peak worldwide,
but they differ widely on exactly when.
Colin Campbell, a retired geologist in Ireland who has worked throughout
the oil industry, including Texaco, BP and Amoco, says the peak will
come before 2010. It may be already happening, he said, given that global
oil production has declined slightly since 2000.
Some researchers say the drop is a temporary and deliberate response
by oil producers to cut back because of the bad economy and lower demand.
Campbell, however, believes that virtually all nations are pumping at
full capacity.
"I think we may live to see that 2000 may have been the peak,"
Campbell said. "We're hitting capacity again now -- oil prices
are surging. It's reasonable to think that by 2010, you will have a
volatile period of recession, oil spikes and price shocks."
The U.S. Energy Information Administration paints a different picture.
The agency, part of the Department of Energy, pegged the peak at anywhere
between 2021 and 2112.
The wide time frame takes into account 12 scenarios. Different assumptions
about production growth and reserve size produce different peaks.
The earliest peak, in 2021, is achieved with 3 percent annual growth
in crude production and relatively low reserves. The latest peak, in
2112, assumes no production growth and big reserves.
Pete Stark, vice president of industry relations for IHS Energy, agrees
with the Energy Information Administration that there is no immediate
crisis. Production won't crest until at least 2020, and probably much
later, he said.
"We don't see it as much of a peak, but more of a plateau,"
Stark said. "It's not a calamitous situation. It's one we have
time to adjust to."
The oil industry operates under the assumption that peak oil production
is decades away, if not more. John Felmy, an economist with the American
Petroleum Institute, an industry trade group, characterized more imminent
forecasts as "Chicken Little predictions."
Part of the reason researchers are so divided is that there is no standard
formula to determine oil reserves. Instead, they rely on a range of
estimates of how much oil is available to pump.
For example, the U.S. Geological Survey says that there are up to 3.9
trillion barrels. Campbell estimates reserves at about half that amount.
The biggest known onshore and offshore reserves are in Saudi Arabia,
followed by Canada and Iraq, according to the Oil & Gas Journal.
Unreliable numbers
Reserve figures provided by oil companies are often unreliable, according
to some analysts. To meet Wall Street expectations, the companies sometimes
understate or overstate the totals, the analyst said.
In the past couple of weeks, for example, Royal/Dutch Shell has lowered
the numbers for its proven reserves twice, for a total of more than
20 percent, forcing the resignation of the firm's chairman. Company
executives had designated some oil and natural gas as likely to be pumped
when in fact drilling was questionable.
Securities and Exchange Commission rules require companies to include
only oil that is "likely recoverable" in their proven reserves.
However, the rules apply only to firms that trade publicly in the United
States.
Getting clarity on reserves is further clouded by figures provided
by oil- producing countries with nationalized industries, according
to analysts. Some countries, especially members of OPEC, have raised
reserve estimates significantly without explanation or have reported
the same reserves several years in a row, apparently failing to deduct
ongoing drilling.
"It's a minefield," said Meyer, from the Oil Depletion Analysis
Center.
Researchers generally factor additional oil from future discoveries
into their calculations. But potential improvements in technology, such
as the ability to drill deeper from offshore platforms and the extra
oil it may produce, are not usually considered.
Analysts readily admit that future developments in the oil industry
might require them to adjust their forecasts. Indeed, the peak in production
may be further off than they currently believe, they concede.
However, pushing the date more than a few years into the future would
require the discovery of vast quantities of oil, according to Meyer.
Only finding the equivalent of a Saudi Arabia or two would make a significant
difference, he said.
"Even if these near-term forecasts are off by a decade, this should
still be of public concern," Meyer said.
Some elected officials, including President Bush, have advocated opening
parts of the Arctic National Wildlife Refuge in Alaska for drilling
to help make the United States less dependent on imports and to help
lower oil prices. An Energy Information Administration report released
last week said up to 876, 000 barrels of crude a day could be produced
in the refuge by 2025.
On a global scale, the amount would comprise less than 1 percent of
all production expected in that year. The added drilling, if it ever
happens, would do little to offset a decline in world oil production,
according to analysts.
Some of the analysts who foresee imminent drops in oil production advocate
making greater use of alternative sources of energy, including nuclear,
geothermal and biomass. They all call for conservation.
"One thing we could do now is use less oil now, and that can certainly
help soften the blow and put off the peak," said Goodstein, the
author and Cal Tech professor.
Felmy, the industry economist, said oil companies already have initiatives
to develop fuel cells, windmills and solar and hydrogen power. He was
especially enthusiastic about the potential for frozen methane, which
he described as abundant in permafrost and underwater.
Stark, from IHS Energy, was sanguine about doomsday scenarios. Even
in the improbable event that no new oil is discovered, he said, the
world can continue consuming existing reserves at the current pace for
another 106 years.
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CHART (1):
Oil production and reserves
Some researchers are predicting that oil production will begin to decline
within a few years. The following charts show current production and
known reserves..
Top world oil producers, 2002
In millions of barrels per day
United States - 9.08
Saudi Arabia - 8.54
Russia - 7.65
Mexico - 3.61
Iran - 3.54
China - 3.37
Norway - 3.33
Canada - 2.94
Venezuela - 2.91
United Kingdom - 2.55
United Arab Emirates - 2.38
Nigeria - 2.12
Iraq - 2.04
Kuwait - 2.03
--------------------------------------------------------------------------------
CHART (2):.
Countries with the biggest oil reserves, 2003
In billions of barrels
Saudi Arabia - 261.8
Canada - 180.02
Iraq - 112.5
United Arab Emirates - 97.8
Kuwait - 96.5
Iran - 89.7
Venezuela - 77.8
Russia - 60
Libya - 29.5
Nigeria - 24
United States - 22.67
China - 18.25
Qatar - 15.2
Mexico - 12.62.
Sources: Energy Information Administration, Oil & Gas Journal,
Map: ESRICHART (3):
IS OIL PRODUCTION ABOUT TO DECLINE?
Oil production has mostly increased to satisfy the world’s growing
appetite for crude. If predictions are correct, production may soon
begin to decline, sending the line on this chart downward permanently.
World crude oil production, 1960-2002:
2002: 66.92 million barrels per day..
When will reserves start to decline?
Studies give a wide array of time frames for when oil production will
peak. Following is a sampling of forecasts:
- 2000-2010: Colin Campbell, retired oil industry geologist
- 2004-2008: Kenneth Deffeyes, professor emeritus in geoscience, PrincetonUniversity
- 2010-2020: International Energy Agency
- 2010-2025: Jean Laherrere, retired French oil executive and consultant
- 2021-2112: U.S. Energy Information AdministrationSource: Energy Information
AdministrationChronicle Graphic