May 19, 2006
Friday

Since Henry Ford rolled out the first Model T almost a century ago, the world has been riding a hydrocarbon bubble that transformed America's landscapes and lifestyles.

But some oil experts and economists warn global oil production is peaking. Oil production isn't going to drop off a cliff, they say, but the future is one in which annual supplies will for the first time begin gradually diminishing, precipitating even higher prices and perhaps shortages.

It's a vision where $70-a-barrel oil - which translates to about 11-cents a cup - could be considered a bargain.

"The days of inexpensive, convenient, abundant energy sources are quickly drawing to a close," warns a U.S. Army Corps of Engineers study, which projects there's only 41 years left before the world uses up the proven reserves of oil. "World oil production is at or near its peak and current world demand exceeds the supply."

There's actually considerable variance of opinion among experts as to when the peak will arrive - or even if it will arrive. Princeton geologist Kenneth Deffeyes argues the peak - the high point of global oil production - actually came Thanksgiving Day last year. The U.S. Energy Information Agency says the peak is still probably two decades away.

The oil company Chevron has launched a massive advertising campaign to spark a debate over the issue and how the industrialized world that depends on oil should handle the transition.

Houston energy analyst Matthew Simmons argues the situation may actually be worse than everyone thinks because he maintains Saudi Arabia has overestimated the vastness of its oil reserves, and the difficulties of getting the hard-to-extract oil that remains underground.

Official projections of oil reserves in the world are merely guesstimates, Simmons say, and it's not in the interests either of oil companies or the oil-producing countries to provide accurate data because that could change the price of oil or diminish their standing in the world. About 95 percent of the world's "proven" reserves of oil and natural gas reserves have never been audited to substantiate claims they are there.

In recent presentations to the American Petroleum Institute and investment analysts, Simmons noted that if he's wrong, he will bear the criticism that he's been crying wolf. But he argued that if he's right, governments will have to act quickly to adopt conservation measures and to change wasteful energy practices to prevent oil shortages from provoking a crisis.

"Denying peaking of modern energy creates the ultimate crisis," says Simmons. He argues governments should adopt simple conservation measures to save gasoline, such as putting trucks traveling long distances on trains instead of highways and conserving natural gas supplies.

Optimists say predictions of peaking oil production aren't new and blame the recent hikes in gasoline prices on the unexpectedly swift increase in demand for oil from China and India, whose economies are expanding at almost double-digit rates each year.

Myron Ebell, director of energy policy at the Competitive Enterprise Institute, which is funded in part by ExxonMobil and other energy companies, said there have been past estimates of oil drying up, including one by the Interior Department in the 1930s saying oil would be depleted in the United States by 1940.

"These predictions have a long history of being proven wrong,'' he said.

Ebell said the Saudis don't share Simmons' pessimism about the size of their oil reserves. He agrees the estimates of the untapped Saudi reserves could be wildly off base, but it's just as possible there's more oil there than the Saudis have disclosed.

"It's not in the interests of the Saudi government to give away how much oil they have," he said. "I think there are more reserves there than they're telling us."

Ebell said there are vast reserves of oil still held off-limits from exploration by political decisions.

The production of oil from U.S. oil wells itself peaked in 1973, when 9.3 million barrels a day was brought up from the ground. Today U.S. production is about 5.4 million barrels a day, and about 60 percent of America's oil is imported.

But Ebell said potentially huge reserves remain untapped off the coasts of California and Florida, or in the Arctic National Wildlife Refuge in Alaska, that Congress has declared off-limits to exploration. He said government decisions overseas nationalizing the oil industry also have dampened production, because governments aren't as efficient stewards of oil reserves as the industry.

Furthermore, Ebell said technology has come to the rescue in the past when oil production has hit dry spots. Oil today is being extracted from wells drilled under the seas, and wells drilled 12,000-feet deep into the earth - more than double the depth thought possible in the 1970s - and steam is pumped down into some wells to dislodge the more sludgy deposits.

Ebell's optimism could be justified. The Energy Department says the largest deposits of oil discovered in the United States in a half-century have been located in fields along the Montana-Saskatchewan border that the major oil companies abandoned in the 1990s.

Wildcatters, using innovative technology, found fields the major companies missed, and the untapped reserves are significant enough to boost known U.S. oil reserves by 1 percent.

The Native American Energy Group, which holds some of the leases on wells in northeast Montana, said advanced recovery techniques are helping extract difficult-to-recover oil deposits throughout the region.

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