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<H4 id=header2>Tell people something they know already,<BR>and they will thank
you for it. Tell them<BR>something new, and they will hate you for it.</H4>
<DIV id=content>
<H2>27/9/2005</H2>
<DIV class=post>
<H3 class=storytitle id=post-952><A title="Permanent Link: Crying Sheep" href=""
rel=bookmark>Crying Sheep</A></H3>
<DIV class=meta><A title="View all posts in oil" href=""></A> </DIV>
<P class=storycontent>We had better start preparing for a decline in global oil
supply</P>
<P class=storycontent><A id=more-952></A></P>
<P class=storycontent>By George Monbiot. Published in the Guardian 27th
September 2005</P>
<P class=storycontent>Are global oil supplies about to peak? Are they, in other
words, about to reach their maximum and then go into decline? There is a simple
answer to this question: no one has the faintest idea.</P>
<P class=storycontent>Consider these two statements: 1. “Last year Saudi Aramco
made credible claims that as much as 500 billion-700 billion barrels remain to
be discovered in the kingdom.” 2. “Saudi Arabia clearly seems to be nearing or
at its peak output and cannot materially grow its oil production.”</P>
<P class=storycontent>The first comes from a report by Energy Intelligence, a
consultancy used by the major oil companies(1). The second comes from a book by
Matthew Simmons, an energy investor who advises the Bush administration(2). Whom
should we believe? I have now read 4000 pages of reports on global oil supply,
and I know less about it than I did before I started. The only firm conclusion I
have reached is that the people sitting on the world’s reserves are liars.</P>
<P class=storycontent>In 1985, Kuwait announced that it possessed 50% more oil
than it had previously declared. Had it just discovered a new field? Had it
developed a new technology, which could extract more oil from the old fields?
No. <SPAN class=caps>OPEC</SPAN>, the price-fixing cartel to which it belongs,
had decided to allocate production quotas to its members based on the size of
their reserves. The bigger your stated reserve, the more you were allowed to
produce(3). The other states soon followed Kuwait, adding a total of 300 billion
barrels to their reserves(4): enough, if it existed, to supply the world for 10
years. And their magic oil never runs out. Though extraction has long
outstripped discovery, Kuwait posts the same reserves today as it claimed in
1985(5).</P>
<P class=storycontent>So we turn to the <SPAN class=caps>US </SPAN>Geological
Survey for an answer, and find that its estimates of global oil supply are as
reliable as the Pentagon’s assessments of Iraqi weapons of mass destruction. In
1981 it said we possessed 1719 billion barrels of oil(6). In 2000, 2659(7). Yet
the discovery of major oil fields peaked in 1964(8). Where has it come from?</P>
<P class=storycontent>It is true to say that oil reserves are not fixed. As
technology improves or the price increases, oil that was formerly too expensive
to extract becomes available. But the oil geologist Jean Laherrere points out
that the survey’s estimate “implies a five-fold increase in discovery rate and
reserve addition, for which no evidence is presented. Such an improvement in
performance is in fact utterly implausible, given the great technological
achievements of the industry over the past twenty years, the worldwide search,
and the deliberate effort to find the largest remaining prospects.”(9)</P>
<P class=storycontent>The current high oil prices are the result of a shortage
of refineries – exacerbated by the hurricanes in the Gulf of Mexico – rather
than a global shortage of crude. But behind that problem lurks another. Last
week Chris Vernon of the organisation PowerSwitch published figures showing that
while total global oil production has risen since 2000, the production of light
sweet crude – the kind that is easiest to refine into motor fuels – has fallen,
by two million barrels a day(10). This grade, he claims, has already peaked. The
refinery crisis results partly from this constraint: there aren’t enough plants
capable of processing the heavier grades.</P>
<P class=storycontent>And next in the queue? Who knows? All I can say is that
Bush himself does not appear to share the Geological Survey’s optimism. “In
terms of world supply,” he said in March, “I think if you look at all the
statistics, demand is outracing supply, and supplies are getting tight.”(11)
What has he seen that we haven’t?</P>
<P class=storycontent>If the figures have been fudged, we’re stuffed. That might
sound extreme, but it is not my conclusion. It is that of the consultants hired
by the <SPAN class=caps>US </SPAN>Department of Energy. In February this year,
the department released a report called “Peaking of World Oil Production:
Impacts, Mitigation, & Risk Management”.(12) I say “released”, for it was
never properly published. For several months the only publicly available copy
was lodged on the website of the Hilltop High School in Chula Vista,
California.(13)</P>
<P class=storycontent>The department’s consultants, led by the energy analyst
Robert L Hirsch, concluded that “without timely mitigation, the economic,
social, and political costs will be unprecedented.” It is possible to reduce
demand and to start developing alternatives, but this would take “10-20 years”
and “trillions of dollars”. “Waiting until world oil production peaks before
taking crash program action leaves the world with a significant liquid fuel
deficit for more than two decades”, which would cause problems “unlike any yet
faced by modern industrial society.”(14)</P>
<P class=storycontent>Of course, we have been here before. Oil analysts and
environmentalists have warned of disappearing reserves ever since drilling
began, and they have always been proved wrong. According to people like the
Danish statistician Bjorn Lomborg, this is because the industry is
self-regulating. “High real prices deter consumption and encourage the
development of other sources of oil and non-oil energy supplies”, he says.
“Since searching costs money, new searches will not be initiated too far in
advance of production. Consequently, new oil fields will be continuously added
as demand rises. ... we will stop using oil when other energy technologies
provide superior benefits.”(15)</P>
<P class=storycontent>It is beginning to look as if he is wrong on all counts.
As the Economist magazine pointed out on September 10th, “demand for petrol is
pretty inelastic in the short term”(16), because people still have to go to
work, however much it costs. According to the analyst it cites, “it would take a
doubling of petrol prices to reduce American petrol consumption by just 5%.”(17)
Lomborg’s idea that companies can just go out and find new oil when demand rises
suggests that he believes geology is as malleable as statistics. One day – or so
we should hope – a superior technology will certainly emerge, but cheap
alternatives to liquid fuels are currently decades away. Yes, the pessimists
have been crying wolf for almost a century. But better that, perhaps, than
crying “sheep” when the wolves appear.</P>
<P class=storycontent>The Hirsch report has no truck with those who believe in
the magic of the markets. “High prices do not a priori lead to greater
production. Geology is ultimately the limiting factor”.(18) There are plenty of
oil shales, tar sands and coal seams available for turning into liquid fuels,
but it would take years and a massive investment before enough came online.
Hirsch compares the projections of the oil optimists to those of the gas
optimists in the late 1990s, who promised “growing supply at reasonable prices
for the foreseeable future” in the US and Canada. Today the same people are
bemoaning the deficit. “The North American natural gas market is set for the
longest period of sustained high prices in its history, even adjusting for
inflation … Gas production in the United States (excluding Alaska) now appears
to be in permanent decline”.(19)</P>
<P class=storycontent>“The bottom line,” Hirsch says, “is that no one knows with
certainty when world oil production will reach a peak, but geologists have no
doubt that it will happen.” Our hopes of a soft landing rest on just two
propositions: that the oil producers’ figures are correct, and that governments
act before they have to. I hope that reassures you.</P>
<P class=storycontent>www.monbiot.com</P></DIV></DIV></FONT></DIV><!-- |**|begin egp html banner|**| --><A
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