In 1956, Shell Oil geophysicist M. King Hubbert told the American Petroleum Institute that U.S. oil production would peak around 1970. It did. Hubbert noted that daily production (extraction) from an oil field grows until a peak, and then declines at a similar rate. This production peak, or “Hubbert’s Peak,” occurred when an oil field, or a country’s reserves, was approximately half depleted.

The U. S. adapted to its peak production by increasing oil imports and improving energy efficiency. Now, Hubbert’s philosophical successors, such as retired Texaco geologist Colin Campbell, have predicted global oil production will peak before the end of this decade. In contrast, U.S. government agencies, the International Energy Agency (IEA—an affiliate of the Organization for Economic Cooperation and Development), and others argue that conventional oil will not peak for at least two decades, and that unconventional sources of petroleum will provide sufficient supplies to meet expected demand thereafter.

Oil is the lifeblood of the world economy. The world uses more than 84 million barrels of oil per day, accounting for 40 percent of all energy used for transportation and for residential, commercial, and industrial needs. If oil production is soon to reach its peak, then the subsequent decline in production could have significant economic and social consequences.

Political, economic, and geologic factors render a precise estimate of peak oil complex or even impossible. However, there are compelling reasons to believe that global (conventional) oil production has not peaked, yet, and that the world can transition through the “end of oil” without significant disruption.

The Pessimists and the Optimists

Campbell and other peak oil pessimists argue that the world has used one trillion barrels of oil, and that little more than one trillion barrels remain, implying an imminent peak. The pessimists note that the pace of oil production has outpaced discoveries, primarily because the size of the average oil field discovery is in decline. They also remain skeptical of the scale of current, large reserves and of predictions of significant new oil discoveries. Energy analyst Matt Simmons, chairman of investment banking firm Simmons & Co. International, has reinforced this concern by concluding in his book Twilight in the Desert that a comprehensive review of published technical papers on Saudi oil fields indicates Saudi oil production, the largest and the lowest cost in the world, may be peaking.

IEA and other peak oil optimists agree that roughly 1 trillion barrels of oil have been consumed during the past century. The agency also points to 1.1 trillion barrels of proven oil reserves available for production, as well as another 1.5 trillion barrels available from discovered but unproven oil reserves, undiscovered reserves, and reserves available through enhanced recovery. By Hubbert’s reasoning, this would imply two decades will pass before peak global oil production.

Two key factors account for the different oil reserve estimates, and thus peak production estimates, of the pessimists and optimists:

New technologies.

According to IEA, only 35 percent of oil is recovered from the average oil field. Improved technologies could significantly increase this recovery rate, and therefore the level of accessible reserves. For example, new technologies have increased the North Sea peak production estimates by 50 percent from years 1985 to 2000.

Underinvested and unexplored areas.

From 1985 through 2000, the oil industry experienced relatively low prices due to overcapacity. There was little incentive for producers in the Middle East, Russia, and other areas with large reserves to develop additional ones. There also remain numerous oil-producing regions where significant, additional reserves are likely to be discovered, such as Angola and West Africa, and the Caspian region. Significant, additional reserves may also be identified in non-oil producing regions, such as the Arctic region and deepwater areas. Because oil companies prefer high prices, there is a collective disincentive to provide additional supply, and a collective incentive to foster expectations of a supply shortfall. Nevertheless, if individual profit-making companies and countries perceive sustainability in long-term energy prices, additional capital will be deployed to these as yet untapped areas. Some areas in which additional production may take place are environmentally or politically sensitive, and thus may be beyond reach. As ChevronTexaco’s CEO has stated: The era of easy access to energy is over.

Nevertheless, if we make reasonable assumptions regarding future investments in existing and prospective oil fields, and likely improvements in technology, but also discount significantly the estimates of current and prospective reserves, it is THE END OF OIL? continued from page 1 realistic to conclude that original global oil reserves totaled 2.6 trillion barrels, implying 0.3 trillion barrels remain until half depletion—Hubbert’s Peak—around the year 2012. This is not exactly a formula for plentiful oil for the foreseeable future, but is also not the case drawn by many pessimists.

After Oil?

Regardless of when global oil production peaks, there are only two means by which to achieve a smooth transition to an era without oil. On the one hand, the petroleum industry and the U.S. administration have emphasized natural gas and unconventional oil supplies as near-term alternative sources of energy. On the other hand, environmentalists and others have encouraged policies that promote conservation and environmentally friendly alternative energy sources.

Natural gas. According to estimates by IEA, the world has already used an amount of natural gas that is equivalent to 0.45 trillion barrels of oil (boe), and 2.35 trillion boe of natural gas remain. Despite significant opposition from many local communities, leading natural gas firms are rapidly developing and implementing plans to build facilities to receive liquefied natural gas (LNG) via tankers from countries with significant gas reserves, such as Russia and Qatar.

Unconventional oil. The oil industry seeks to increase production of unconventional oil supplies, such as tar sands and oil shale. The production processes for both are described as intensive by industry, and environmentally destructive by critics. Canada’s proven reserves of tar sands are 175 billion boe. According to the U.S. Department of Energy, the Rockies shelter 500 billion boe of shale oil. Even if one reasonably discounts these reserve estimates, and adjusts for the higher energy intensity of producing these sources, the cumulative effect of relying on conventional and unconventional sources of petroleum is to extend peak production by two or three decades.

Alternatives to petroleum. Whether or not natural gas and unconventional oil are developed significantly, they too will eventually be unable to supply expected demand. For those willing to ignore environmental concerns, coal and nuclear supplies are also longer-lasting energy supply alternatives to petroleum. For those wanting to mitigate the environmental impacts of petroleum consumption, promising alternatives include biodiesel, hydrogen, and wind energy.

Conservation. In his book, Winning the Oil Endgame, Amory Lovins of Rocky Mountain Institute argues that use of current technologies, development of a domestic biofuels industry, and revenue neutral public policies could significantly reduce or obviate U.S. use of oil by the year 2050. For example, Lovins points to advanced carbon-fibers and light weight steel materials that could boost the efficiency of hybrid-electric vehicles. Conservation would also help avoid a significant diversion of intellectual and financial capital from socially productive uses to energy supply development.

Consequences of Peak Oil

Does the apparently sufficient supply of energy from a variety of sources in and of itself mean that energy prices will decline? Probably, but not definitively. The scale and stability of future supply is only one factor that determines oil prices. Expectations of the cost of producing additional conventional and unconventional energy supplies is another factor. As Daniel Yergin of Cambridge Energy Associates notes, the primary risks to world energy supplies are above ground, not below. A sustainable U.S. energy policy, a forward-thinking U.S. foreign policy, improved energy data transparency from OPEC, and continued improvements in energy technologies would help mitigate these risks. The consequences of inaction are extraordinary for our economy, national security, and the natural environment.

—K. Scott