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12 June 2008 Edition

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THE OIL CRISIS : Affecting every aspect of our lives

Running on empty?


BY PAUL O’CONNOR

AS the price of oil soars to unprecedented levels, peak oil - the idea that the world is at or near the peak of oil production, after which it will gradually decline - is being taken seriously by a growing number of people.  
The world currently uses 87 million barrels of oil each day. The International Energy Agency estimates that this will rise to 110 barrels per day by 2030, fuelled by the relentless surge in demand from China and India as well as developed nations like the US. But will the world ever be able to produce that much oil? All the evidence is that the industry is straining to meet existing demand.


What is peak oil?
Peak oil is the point at which the world’s oilfields are pumping out the maximum amount of oil they ever will. From then on, supply will gradually begin to decline. When the world reaches peak oil, there will still be oil in the ground. Reservoirs will continue to produce for decades more but oil supplies will no longer be able to meet global demand. As a consequence, the price of oil will soar.
Oil is a non-renewable resource. It formed hundreds of millions of years ago when the remains of plankton collected on the seabed, to be buried by sediment and cooked by huge pressures in the depths of the earth.
At some point, exactly half of all the recoverable oil on earth will have been used up. Production will then begin an inexorable decline. But why can’t we keep on increasing the amount of oil we pump until all the world’s oil runs out, decades from now? The reason is that the ‘easy’ oil gets produced first - oil that is easily accessible, flows from the ground under its own pressure, and is not contaminated with chemicals such as sulphur.
When an oilfield is first drilled the oil tends to burst from the ground under the pressure of the reservoir. As oil is pumped out, reservoir pressure falls and companies have to inject gas or water into the well, or use electronic pumps, to keep the oil flowing. In addition, the largest oilfields tend to be discovered and exploited first because they are easiest to find and cheapest to bring into production.
This means the largest fields and the oil that is easiest to produce were discovered and exploited in the first half of the oil age. Smaller fields and lower-quality, less accessible oil is left for the second half. This means production will drop – and the cost of producing each barrel will rise.
A graph of oil production -–for an individual oilfield or for the entire world – will therefore show a steep rise, a flat peak, and an accelerating fall. This graph is called Hubbert’s Peak, after the American geologist M King Hubbert, who predicted in 1956 that oil production in the US would peak by 1971. At the time he was ridiculed as American production was soaring. In the event, the peak came one year ahead of schedule, in 1970. Since then, despite deploying the most advanced drilling and extraction technology in the world, US oil companies have been unable to halt the relentless decline in production. 


When will oil production peak?
Estimates of when oil production will peak depend on how much recoverable oil is left in existing reserves and how much remains to be discovered.
The world has produced about a trillion barrels of oil since drilling began over a century ago. Government agencies like the American EIA (Energy Information Agency) claim there are a further one trillion barrels of recoverable resources still underground. However, the world of oil reserves is shrouded in secrecy. Both oil companies and the governments of oil-producing countries have an incentive to exaggerate the amount of reserves in their possession – companies because it boosts their share price, governments because it gives them greater international clout.
In particular, there is suspicion about the reserve figures for countries in the Middle East.
In the 1980s, OPEC changed the way it allocated production quotas to take into account the size of a country’s reserves. Overnight, Middle Eastern nations discovered they had massively underestimated their oil reserves – beginning with Kuwait, which increased its estimate of proven reserves from 64 to 90 billion barrels.
The new reserve figures have remained constant since the 1980s despite billions of barrels of oil being extracted in the interim. This would require us to believe that in every year since the 1980s each Middle Eastern country has discovered exactly the same amount of oil as it has produced. This is frankly incredible. Indeed, Sadad Al-Husseini, former vice-president of the Saudi national oil company, Aramco, claims Middle Eastern reserves are over-estimated by 300 billion barrels.
But is there more oil waiting to be discovered? Not as much as you might think.
The biggest oil fields were discovered decades ago, in the 1940s and 1950s, and in the last couple of decades major new discoveries have been rare. The peak year for oil discovery was 1965. Indeed, the most oil discovered in any single year was way back in 1948.
More oil has been produced than discovered every year since 1981, eating into world reserves. Since the turn of the 21st Century, we have been using four barrels of oil for every new barrel we discover. Half of the world’s oil lies in its 50 largest fields, almost all of which were discovered over 30 years ago.
By now, almost all areas of the world have been explored for oil using advanced technology. The chances of many more giant finds is small.
If there is little more oil to be found – and Middle Eastern reserves are indeed overstated – then oil peak lies any time between now and 2015. And a growing number of experts believe this to be the case.
Leading energy investment banker Matt Simmons believes we are at peak oil now, as does Iranian retired oil executive Samsam Bahktiari. The Association for the Study of Peak Oil – an organisation of petroleum geologists and industry experts with branches in 11 countries – predicts oil production will peak in 2011. Chris Skrebowski, editor of Petroleum Review, believes (on the basis of a field-by-field study of production figures) that the oil peak will be reached in 2011/2012. As things stand, oil production is already falling in 60 countries.
If we are indeed on the brink of peak oil, it will have massive implications not just on the economy but on every aspect of our lives – how we travel, how we shop, how we grow food, how we design our towns and cities. The combination of soaring oil prices, geopolitical instability in oil-producing regions, and climate change already makes energy supply one of the leading issues of our time. Expect it to loom even larger in the decade ahead. 

There are a range of books on peak oil. Among the most helpful are David Strahan’s The Last Oil Shock; Jeremy Leggett’s Half Gone; and Richard Heinberg’s The Party’s Over. Useful websites include www.energybulletin.net, www.theoildrum.com, and www.apso-ireland.org  

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