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Event

 
Bracing the world for the day when the oil runs out

By Michael Harrison, Business Editor
Published: 18 January 2006
http://news.independent.co.uk/business/analysis_and_features/article339347.ece

As the oil price nudged above $64 a barrel yesterday on heightened 
concerns about disruption to supplies from Iran and Nigeria, a small 
group of geologists, economists and commodity traders was meeting in 
London to consider a more fundamental question: when will the world 
begin to run out of oil?

That moment is known as "peak oil" - the point at which production stops 
increasing and goes into inexorable decline. Some commentators believe 
that moment may be as little as two years away, some reckon we do not 
need to worry for another 20 years and some think the peak of production 
is so far in the distance that it is pointless to even try to put a 
timescale on it.

But one thing that all shades of opinion are agreed on is that when peak 
oil does happen, its impact on the world economy - and the consumer 
lifestyles so many of us take for granted - will be profound. Chris 
Skrebowski, the editor of the Energy Institute's Petroleum Review, 
believes peak oil will occur in 2008, at which point the world will move 
into "a land without maps where we are all likely to be poorer".

For oil is essential to almost everything we do - 90 per cent of world 
transport is oil-dependent; all petrochemicals are produced from oil; 99 
per cent of our food relies on oil in some way, either to grow it or get 
the produce to market; and 95 per cent of lubricants are oil-based. And, 
in many cases, oil is not easily replaceable. There are no realistic 
alternatives to oil for fuelling aircraft and ships, producing 
petrochemicals or powering cars, without massive investments in 
technology such as hydrogen.

Given that world oil consumption has doubled since 1970 from 42 million 
barrels a day to 84 million, that poses a stark challenge. At present 
rates of depletion, 5 million barrels a day of new production will need 
to be brought on stream for the next 10 years just to keep world output 
rising.

The peak oil debate tends to divide into two camps. On the one hand 
there are geologists who argue it is almost upon us or shortly will be, 
based on analysing past production and discovery rates and field 
exhaustion and extrapolating into the future. On the other there are 
economists, political scientists and the oil majors who believe that oil 
producers - be they governments or companies - will always find a way to 
meet demand, whether through cleverer ways of finding and extracting oil 
or greater fiscal incentives to discover and produce more.

Yesterday's conference in London, organised by the Dutch investment bank 
Insinger de Beaufort, represented both strands of opinion. Mr Skrebowski 
says that the world's big five oil majors all produced less in 2005 than 
they did in 2004, while North Sea oil production is declining so rapidly 
that it will halve in the next seven years.

According to the University of Reading's Dr Roger Bentley, the secretary 
of the Association for the Study of Peak Oil & Gas, the evidence is 
irrefutable. He points out that 64 of the world's 100 or so 
oil-producing countries are already past the point of peak production 
and on the downward slope. Although there may be a "mini-glut" as output 
is stepped up from Russia, the Caspian and Iraq and new sources come on 
stream such as deepwater oil and oilsands, the trend, he says is 
unmistakable. Dr Bentley believes that non-Opec production will reach a 
peak within the next 30 months while global output will start to decline 
between 2010 and 2015 or 2020 at the latest depending on the 
contribution from non-conventional sources such as oilsands. "Alongside 
global warming, this is one of the two extraordinary challenges facing 
mankind," he says. "The numbers may slip a little but the fundamental 
underlying direction does not change."

Dr Jeremy Leggett, an oil industry geologist turned environmental 
campaigner turned chief executive of a solar energy company, paints an 
even more apocalyptic scene. He believes that peak oil will occur some 
time this decade. That will not only produce "horrible economic pain" as 
oil prices rise to choke off demand but it will also precipitate 
environmental disaster as oil-consuming countries switch to coal and 
hasten global warming. "The shortfall between current expectations of 
oil supply and actual availability will be such that neither gas, nor 
renewables, nor liquids from gas and coal, nor nuclear, nor any 
combination thereof will be able to plug the gap in time to head off 
economic trauma," he warns.

What is his evidence? Dr Leggett points to the lessons of history. In 
1956, a world-renowned geologist, M K Hubbert, predicted that US oil 
production would peak in 1971, much to the disbelief of almost everyone, 
including his employer Shell. He turned out to be wrong - peak 
production occurred a year earlier in 1970. Using the same methodology, 
the "Hubbert curve" falls smoothly to this day, pointing to a peak 
sometime between 2005 and 2010. Despite the ingenuity of the oil 
industry in extracting oil from ever more hostile environments, it is, 
adds Dr Leggett, a quarter of a century since the world discovered more 
oil in one year than it produced. In 2000 there were 16 discoveries of 
giant fields containing 500 million barrels or more - in 2003 there were 
none.

Not all those attending yesterday's conference are sold on the idea of 
peak oil. Mike Lynch, an adviser to the US government who runs his own 
energy and economic research consultancy, is one of the biggest 
sceptics. He says that the study of peak oil is not a science and that 
those who advocate it are guilty of naiveté, ignorance and plain 
manipulation of the data. "There are a lot of zealots out there and a 
lot of claims are made which are not tested," he says. "It is true that 
oil is finite but since 1989 people have repeatedly predicted the peak 
too soon and have had to keep on increasing their estimate of reserves. 
Just because a country's output has peaked and gone into decline, it 
doesn't mean that production can't rise again." He cites the example of 
the fall in North Sea production in the 1980s which supporters of peak 
oil attributed to geological factors but which was, in fact, due to more 
stringent safety measures after the Piper Alpha fire.

Mr Lynch is one of the few pundits who forecasts that oil prices will 
begin to ease, but as even he jokes: "I have predicted nine of the last 
two price decreases."

As the oil price nudged above $64 a barrel yesterday on heightened 
concerns about disruption to supplies from Iran and Nigeria, a small 
group of geologists, economists and commodity traders was meeting in 
London to consider a more fundamental question: when will the world 
begin to run out of oil?

That moment is known as "peak oil" - the point at which production stops 
increasing and goes into inexorable decline. Some commentators believe 
that moment may be as little as two years away, some reckon we do not 
need to worry for another 20 years and some think the peak of production 
is so far in the distance that it is pointless to even try to put a 
timescale on it.

But one thing that all shades of opinion are agreed on is that when peak 
oil does happen, its impact on the world economy - and the consumer 
lifestyles so many of us take for granted - will be profound. Chris 
Skrebowski, the editor of the Energy Institute's Petroleum Review, 
believes peak oil will occur in 2008, at which point the world will move 
into "a land without maps where we are all likely to be poorer".

For oil is essential to almost everything we do - 90 per cent of world 
transport is oil-dependent; all petrochemicals are produced from oil; 99 
per cent of our food relies on oil in some way, either to grow it or get 
the produce to market; and 95 per cent of lubricants are oil-based. And, 
in many cases, oil is not easily replaceable. There are no realistic 
alternatives to oil for fuelling aircraft and ships, producing 
petrochemicals or powering cars, without massive investments in 
technology such as hydrogen.

Given that world oil consumption has doubled since 1970 from 42 million 
barrels a day to 84 million, that poses a stark challenge. At present 
rates of depletion, 5 million barrels a day of new production will need 
to be brought on stream for the next 10 years just to keep world output 
rising.

The peak oil debate tends to divide into two camps. On the one hand 
there are geologists who argue it is almost upon us or shortly will be, 
based on analysing past production and discovery rates and field 
exhaustion and extrapolating into the future. On the other there are 
economists, political scientists and the oil majors who believe that oil 
producers - be they governments or companies - will always find a way to 
meet demand, whether through cleverer ways of finding and extracting oil 
or greater fiscal incentives to discover and produce more.

Yesterday's conference in London, organised by the Dutch investment bank 
Insinger de Beaufort, represented both strands of opinion. Mr Skrebowski 
says that the world's big five oil majors all produced less in 2005 than 
they did in 2004, while North Sea oil production is declining so rapidly 
that it will halve in the next seven years.

According to the University of Reading's Dr Roger Bentley, the secretary 
of the Association for the Study of Peak Oil & Gas, the evidence is 
irrefutable. He points out that 64 of the world's 100 or so 
oil-producing countries are already past the point of peak production 
and on the downward slope. Although there may be a "mini-glut" as output 
is stepped up from Russia, the Caspian and Iraq and new sources come on 
stream such as deepwater oil and oilsands, the trend, he says is 
unmistakable. Dr Bentley believes that non-Opec production will reach a 
peak within the next 30 months while global output will start to decline 
between 2010 and 2015 or 2020 at the latest depending on the 
contribution from non-conventional sources such as oilsands. "Alongside 
global warming, this is one of the two extraordinary challenges facing 
mankind," he says. "The numbers may slip a little but the fundamental 
underlying direction does not change."

Dr Jeremy Leggett, an oil industry geologist turned environmental 
campaigner turned chief executive of a solar energy company, paints an 
even more apocalyptic scene. He believes that peak oil will occur some 
time this decade. That will not only produce "horrible economic pain" as 
oil prices rise to choke off demand but it will also precipitate 
environmental disaster as oil-consuming countries switch to coal and 
hasten global warming. "The shortfall between current expectations of 
oil supply and actual availability will be such that neither gas, nor 
renewables, nor liquids from gas and coal, nor nuclear, nor any 
combination thereof will be able to plug the gap in time to head off 
economic trauma," he warns.

What is his evidence? Dr Leggett points to the lessons of history. In 
1956, a world-renowned geologist, M K Hubbert, predicted that US oil 
production would peak in 1971, much to the disbelief of almost everyone, 
including his employer Shell. He turned out to be wrong - peak 
production occurred a year earlier in 1970. Using the same methodology, 
the "Hubbert curve" falls smoothly to this day, pointing to a peak 
sometime between 2005 and 2010. Despite the ingenuity of the oil 
industry in extracting oil from ever more hostile environments, it is, 
adds Dr Leggett, a quarter of a century since the world discovered more 
oil in one year than it produced. In 2000 there were 16 discoveries of 
giant fields containing 500 million barrels or more - in 2003 there were 
none.

Not all those attending yesterday's conference are sold on the idea of 
peak oil. Mike Lynch, an adviser to the US government who runs his own 
energy and economic research consultancy, is one of the biggest 
sceptics. He says that the study of peak oil is not a science and that 
those who advocate it are guilty of naiveté, ignorance and plain 
manipulation of the data. "There are a lot of zealots out there and a 
lot of claims are made which are not tested," he says. "It is true that 
oil is finite but since 1989 people have repeatedly predicted the peak 
too soon and have had to keep on increasing their estimate of reserves. 
Just because a country's output has peaked and gone into decline, it 
doesn't mean that production can't rise again." He cites the example of 
the fall in North Sea production in the 1980s which supporters of peak 
oil attributed to geological factors but which was, in fact, due to more 
stringent safety measures after the Piper Alpha fire.

Mr Lynch is one of the few pundits who forecasts that oil prices will 
begin to ease, but as even he jokes: "I have predicted nine of the last 
two price decreases."

***
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