By Joan Lowy

07-04-04

It's called "the big rollover," the moment when worldwide demand for oil outstrips the global capacity to produce it. Most oil experts agree that when that day of reckoning comes, it will signal the end of the oil age and the end of cheap energy. Petroleum geologists, energy-industry analysts and others are now saying that moment is close at hand and may even have already occurred.

"This is the monster in the closet," said Kenneth Deffeyes, a professor emeritus of geosciences at Princeton University and author of a book about oil depletion. "This is such bad news that... we're not going to hear from either Republicans or Democrats about it until after the election. Everybody wants to say we can have 2 % or 3 % economic growth."

While the public has generally grown complacent about oil dependence, believing that the day the world runs out of oil is far in the future, that is not the moment that counts, oil experts said. Rather, under the scenario many experts lay out, the key moment will be when oil production can no longer keep pace with demand. When that happens, prices will rise -- maybe sharply, maybe gradually -- and they will keep rising until demand eventually drops.

Since transportation in the United States is almost wholly dependent on oil, and the United States uses more oil than any other nation, the potential for economic havoc is great.

"Whether that peak happens in 2020 or 2050 is not important," said David Goodstein, a physics professor at the California Institute of Technology and author of "Out of Gas: The End of the Age of Oil."
"It still doesn't give us enough time to come up with an alternative if we don't make an attempt to come up with an alternative" right away.

Forecasts for when the peak will arrive vary, with some experts predicting it will occur this decade -- Deffeyes says Thanksgiving Day 2005, give or take a month -- and others point to about 2012. The International Energy Agency, which was created by industrial countries after the 1973oil crisis, places the peak of oil production somewhere between 2010 and 2020.

The US Energy Information Administration, the government's energy data and analysis arm, places the peaking point at about 2037, considerably farther into the future. But the energy administration's analysis is based on an estimate of 3 tn barrels of total recoverable oil since production began -- a far more optimistic assessment than many analysts believe is reasonable. Other experts cite about 40 studies that place the total amount of oil that can ever be technologically and economically recovered at between 1.8 tn and 2.4 tn barrels.

A total of about 950 bn barrels -- or nearly half -- has already been produced. That's key because most analysts -- including experts with the energy administration -- believe that production will peak at about the halfway point in proven oil reserves. Their reasoning is based on the experience of the United States, which reached its production peak in the lower 48 states in 1970 at almost exactly the halfway point in proven reserves.

If the estimates of proven reserves grow based on the discovery of new fields or the use of better technology to recover more oil, the day of reckoning moves further into the future. However, if world demand for oil grows faster than proven reserves, the day of reckoning draws closer. And that's exactly what has been happening. The volume of oil discovered every five years has been decreasing steadily since about 1980, while demand has been growing at about 3 % a year.

Meanwhile, the oil being produced is increasingly coming from older fields that are nearing the point when their yield will start to decline.

"The average barrel of oil comes from a field that was discovered more than 30 years ago and some of it is coming from fields discovered more than 100 years ago," Deffeyes said.

Currently, the world consumes 28 bn barrels of oil a year, or 78 mm bpd.

Matthew Simmons -- chairman of the Houston energy research and investment banking firm Simmons & Company International, and an energy adviser to the Bush campaign in 2000 -- recently created a flurry of controversy in oil circles when he suggested that Saudi Arabia and other OPEC nations may be overstating their proven reserves. If that's the case, then the moment of peak production is likely to be sooner, rather than later.

In the mid-1980s, when OPEC was changing its quota system based on each member country's proven reserves, Saudi Arabia and other countries suddenly and dramatically increased their estimates of proven reserves, Simmons said. Those estimates have essentially remained the same ever since, even though there have been no large oil discoveries "of a meaningful size" in the last 20 years, Simmons said.
"They (Saudi Arabia) went from 360 bn barrels of proved reserves to double that number without any new oil being found and no increase in rigs," Simmons said.

For example, in the early 1970s, four of the world's largest oil companies -- Exxon, Chevron, Texaco and Mobil --estimated the Ghawar oil field, which is the largest oil field in Saudi Arabia, to have 60 bn barrels of recoverable oil, Simmons said.

Ghawar has now produced 55 bn barrels, which means it should be at the end of its life, Simmons said. But Aramco, the Saudi national oil company, now says the field has 125 bn barrels of oil left to produce, Simmons said.

"If that were true, it means that four companies with the single best people working on this missed Ghawar's reserves by a factor of three," Simmons said sceptically.

It's difficult for outsiders to confirm or disprove Saudi estimates since the government keeps secret much of the information on which estimates are based. Saudi officials have vehemently denied any suggestion that their reserves are overestimated, but Simmons and others want Aramco to disclose more information.
"If we don't get serious about reforming energy data," Simmons said, "we're going to have a cataclysmic event and people are going to say, 'Gosh, I wish we had known thisahead of time.' "

Source: Scripps Howard News Service