So who’s right? Fortunately, it looks like humanity is at least a generation away from peak oil production. Unfortunately, there could be another “oil crisis” any day now.
The world consumes about 87 million barrels of oil per day, or nearly 30 billion barrels of oil per year. How much oil is left? It’s hard to be sure. Proven oil reserves—i.e., oil that is recoverable under current economic and operating conditions—are estimated to be 1.1 trillion barrels by the industry journal World Oil, 1.2 trillion by the oil company BP, and 1.3 trillion by the Oil and Gas Journal. In March 2005 the private U.K.-based energy consultancy IHS Energy estimated that the world’s remaining recoverable reserves, excluding unconventional sources such as heavy oil or tar sands, are between 1.3 trillion and 2.4 trillion barrels.
But are proven reserves all that’s left? Several analyses put ultimate reserves at much higher levels. For example, the USGS undertook a comprehensive analysis of world oil reserves in 2000. It calculated that the total world endowment of recoverable oil is 3 trillion barrels. (Its figure is higher because it includes estimates for undiscovered resources and projected increases in already producing fields.) In addition, the total world endowment of natural gas is equivalent to 2.6 trillion barrels of oil, plus 330 billion barrels of natural gas liquids such as propane and butane. The USGS figures that the total world endowment of conventional oil resources is equivalent to about 5.9 trillion barrels of oil. Proven reserves of oil, gas, and natural gas liquids are equivalent to 2 trillion barrels of oil. The USGS calculates that humanity has already consumed about 1 trillion barrels of oil equivalent, which means 82 percent of the world’s endowment of oil and gas resources remains to be used.
In its 2005 Energy Outlook, ExxonMobil estimates “global conventional oil resources total 3.2 trillion barrels…with non-conventional ‘frontier’ resources such as heavy oil bringing that total to over 4 trillion barrels.” In November 2005, the International Energy Agency, an organization created in 1974 by 26 industrialized countries to assess global energy issues, released its annual World Energy Outlook report, which accepted the USGS numbers and concluded that “the world’s energy resources are adequate to meet projected growth in energy demand” until at least 2030. The report predicted that oil production would grow from the 2004 level of 82 million barrels a day to 115 million barrels a day and that any “peak” would occur after 2030. It suggested that world oil prices will decline to around $35 per barrel (in 2004 dollars) by 2010 and eventually rise to $39 per barrel by 2030. At the Montreal Climate Change Conference in December, Claude Mandil, head of the International Energy Agency, declared: “We don’t share the tenets of the peak oil theory. We feel that they underestimate technological developments. For many decades to come there is no geological problem.”
Probably the most respected private oil consultancy in the world is Cambridge Energy Research Associates (CERA) in Boston. On December 7, 2005, CERA senior consultant Robert W. Esser testified at a House Energy and Air Quality Subcommittee hearing on the peak oil theory. “CERA’s belief is that the world is not running out of oil imminently or in the near to medium term,” Esser said. “Indeed, CERA projects that world oil production capacity has the potential to rise from 87 million barrels per day [mbd] in 2005 to as much as 108 mbd by 2015.…We see no evidence to suggest a peak before 2020, nor do we see a transparent and technically sound analysis from another source that justifies belief in an imminent peak.” Instead of a sharp peak followed by a production decline, CERA’s analysts foresee an “undulating plateau” in which global oil production remains more or less steady. “It will be a number of decades into this century before we get to an inflection point that will herald the arrival of the undulating plateau,” said Esser.
Peak oilers discount these rosy scenarios, insisting the relevant fact is that new oil discoveries have been falling during the last couple of decades. But the petroleum optimists, such as the analysts at the USGS, say there is more to it than that. They point out that reserve growth and new discoveries have been outpacing oil consumption. (Reserve growth is the increase in production in already discovered and developed fields.) From 1995 and 2003 the world consumed 236 billion barrels of oil. It also saw reserve growth of 175 billion barrels, combined with 138 billion barrels from new discoveries, added a total of 313 billion barrels to the world’s proven oil reserves. In the U.S., oil field reserves typically turn out to be four to nine times as high as the original estimates. The increase in production is a result of improved recovery technologies, further discoveries in the field, and improved field management.
Consider the Kern River field in California, which was discovered in 1899. In 1942 it was estimated that only 54 million barrels remained to be produced there. During the next 44 years the field produced 736 million barrels and had another 970 million barrels remaining. For geological reasons, petroleum engineers cannot pump every drop of oil out of a reservoir. But by 2004 technological advances enabled them to recover 35 percent of a conventional reservoir’s oil, up from an average of 22 percent in 1980. If this recovery factor can be increased by another five percentage points, that would boost worldwide recoverable reserves by more than all of Saudi Arabia’s current proven reserves. Economides points out that in 1976 the U.S. was estimated to have 23 billion barrels of reserves remaining. In 2005 it still had 23 billion barrels of oil reserves, even though American oil fields produced almost 40 billion barrels of oil between 1976 and 2005.
Matthew Simmons claims to have found that the Saudis are greatly exaggerating the size of their reserves. If true, this is bad news, because the Saudis have more than 30 percent of the world’s reserves and have served as the world’s supplier of last resort for a couple of decades. Simmons argues that the Saudis and others are exaggerating what they have because the supply quotas set by the Organization of Petroleum Exporting Countries (OPEC) were tied to the size of a country’s reserves—the bigger its reserves, the more oil it was permitted to sell. But the desire to boost quotas cannot account for the fact that non-OPEC reserves grew nearly three times faster than OPEC reserves between 1981 and 1996. And whatever incentive OPEC members had to lie about their reserves should have dissipated as the price of oil rose during the last couple of years. Economides notes that the Saudis are investing $100 billion in new production projects, which undercuts the notion that they know they are running out of oil.
At a November meeting of the Council on Foreign Relations, chief International Energy Agency economist Fatih Birol responded to the assertion that Saudi Arabia can’t raise its oil production by outlining a scenario in which he assumed that Saudi oil reserves were 35 percent lower than claimed. Birol noted that experts believe forcing water into reserves to maintain pressure would raise the cost of producing oil by 70 percent at most. In his analysis, Birol assumed it would raise the cost by 300 percent. Considering that it costs about $1.50 to produce a barrel of Saudi crude oil, that means the cost would rise to $6 per barrel. Even with these two assumptions, Birol argues the Saudis could easily produce 18 million barrels of oil per day by 2020, up from the current level of around 10 million.
So if the world has adequate oil supplies for the next generation, can we all go back to driving Hummers? Not so fast.
The Real Oil Crisis
Simmons has been wrong so far: Gasoline does not cost $10 a gallon. Oil prices hovered between $55 and $65 per barrel in late 2005 and early 2006, down from $70 in September 2005. The U.S. Energy Information Administration believes gasoline prices will remain below $3 per gallon in 2006.
What about the future? The International Energy Agency calculates that $3 trillion must be invested in oil production and refining facilities during the next 25 years to meet world demand in 2030. In principle that target could easily be met, since producing 1 trillion barrels at $30 per barrel yields $30 trillion in income over 25 years.
The problem is that the vast majority of the world’s remaining oil reserves are not possessed by private enterprises. Seventy-seven percent of known reserves belong to government-owned companies. That means oil will be produced with all the efficiency associated with central planning. Michael Economides estimates, for example, that it will take $4 billion in investment to keep Venezuela’s oil production at current levels. Yet that country’s Castro-wannabe president, Hugo Chavez, is investing just half that.
If ChevronTexaco, ExxonMobil, or other private companies actually owned the reserves, the world would be in a much more secure position with regard to oil production. Instead, we are subject to the whims of figures like Chavez, Russia’s Vladimir Putin, and Iran’s Mahmoud Ahmadinejad, and must worry about the doubtful stability of their personalities and regimes. (To be sure, even a private reserve under such a regime would face the constant threat of nationalization or other interference.) In the mid-1990s, the world had more than 10 million barrels per day of spare production capacity. That figure has fallen to between 1 and 2 million barrels, which means that any significant disruption in supplies can cause prices to soar.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time.
Pingback| 12.11.09 @ 12:02PM
IEA sets 2020 as the date for peak oil « Alpha Found – Opinion & Analysis links to this page. Here’s an excerpt:
Trackback| 1.3.10 @ 12:46AM
ma credit repair, on ma credit repair, links to this page. Here’s an excerpt:
nfl jerseys|11.7.10 @ 8:51PM|#
jgkjg
|11.22.10 @ 3:10AM|#
small as far from any appeal to worsen while in the haystack. There are a number of assets, but access available, but Women Uggs are outside a little bit less abstruse to access the "skinny" about how to access Shorten Chestnut Cheap women Uggs Classic. ?
|11.22.10 @ 3:13AM|#
Ugg Boots Outlet boots are used in useful. The environment has been adapted colder and colder than yesterday. According to the forecast, temperatures fell below Celsius anything.Ugg Classic Boots On Sale , How hateful the advice
|11.22.10 @ 3:14AM|#
for the layer suit, hat, glover alike Uggs Australia Outlet . It showcases the achievement of the organs of loading of articles to absorb heat. These accout accretion power can demand. Therefore, the dose of the sale Ugg Boots On Sale boots .
دردشة عراقية|10.17.11 @ 12:55PM|#
asdasdasd