$200 a barrel oil by 2010? If oil were to reach $200 per barrel, gasoline would cost about $10 per gallon. Global peak oil proponents believe worldwide oil production is in the process of peaking. Peak oil occurs when half of worldwide oil reserves have been pumped out of the ground, and worldwide oil production declines as exploration and production costs increase. The peak oil event signifies the world’s oil glass is half empty, not that the world’s oil is gone. But it is harder to find and pump the remaining oil. As production declines in an environment of increasing oil demand driven by China, India, and the US, oil prices might skyrocket as high as $200 per barrel.
Peak oil predictions are based on the work of M. King Hubbert, a Shell geophysicist. In 1956, Hubbert predicted US oil production would peak in the late 1960’s or early 1970’s. Although his peers rejected his analysis, Hubbert was proven correct when US oil production did indeed peak in 1970. Ever since then, US oil production has been in decline. Hubbert’s prediction was based on estimating total US oil reserves and developing a mathematical model of production depletion. Hubbert estimated the size of the US oil glass and how fast the oil was being slurped to predict when it would be half empty. Dr. Colin Campbell, a geologist and founder of the Association for the Study of Peak Oil & Gas, has applied Hubbert’s techniques to predict worldwide oil production will peak in the 2005 to 2010 timeframe. Worldwide peak oil predictions cannot be proven until subsequent production drops occur.
As in Hubbert’s day, Dr. Campbell’s prediction of global peak oil faces criticism from oil industry experts. Michael Lynch, President of Strategic Energy & Economic Research, argues that Dr. Campbell has made “A series of predictions of near-term peak and decline, which have had to be repeatedly revised upwards and into the future.” Daniel Yergin, chairman of Cambridge Energy Research Associates, believes demand growth from China and India, terrorism, Iraq, and political instability in oil rich nations have driven oil prices to the $70 per barrel range. “Between 2004 and 2010, capacity to produce oil (not actual production) could grow by 16 million barrels a day — from 85 million barrels per day to 101 million barrels a day — a 20 percent increase,” said Yergin. “This is not the first time that the world has ‘run out of oil.’ It’s more like the fifth. Cycles of shortage and surplus characterize the entire history of the oil industry,” added Yergin, as chronicled in his Pulitzer Prize winning book, “The Prize: the Epic Quest for Oil, Money and Power”.
Anecdotal evidence supports the global peak oil case. Alaska and the North Sea were the last supergiant oil fields to be discovered back in the 1960’s. In 2004, Royal Dutch Shell shocked industry peers and investors by cutting their proven oil reserves by 20%. Oil production and reserve replacement have been flat to down for many major integrated oil companies including ExxonMobil. Last year, Chevron decided to drill for oil on Wall Street and acquire Unocal for $17 billion, fending off Chinese rival CNOOC. Chevron’s takeover highlighted their belief that high oil prices are permanent. With $70 oil, Saudi Arabia has been unable to reclaim their role as swing oil producer and flood the market with crude oil, sparking speculation that their production may be peaking.
Realization of global peak oil predictions could trigger a global recession and reshape the US economy and society. How would $10 gasoline impact your lifestyle? At this price, filling up your sport utility vehicle would cost $250. Matt Savinar, founder of http://www.lifeaftertheoilcrash.net, speculates peak oil will result in “The End of Suburbia”. However, these dire peak predictions are not immutable; recessions, technology, conservation, and new oil discoveries could invalidate them and delay the peak oil day of reckoning. Oil is a limited resource; global peak oil may occur in the next five, ten, or twenty-five years; no one can be certain in advance. Global peak oil is just another reason – with Iranian nuclear ambitions, Nigerian rebels, and Venezuelan President Hugo Chavez’s anti-American policies being the latest — the US should aggressively pursue alternative fuels and renewable energy technologies instead of relying on oil and fossil fuels alone.
(Written on Tuesday, May 1, 2006)