Brace yourself for the end of cheap oil

Is the rate at which we can produce oil about to peak?

A MOMENT of truth is fast approaching-perhaps sooner than we can prepare for it. "The world faces at best a global recession. At worst, war, famine and mass migration," says Richard Hardman, trustee of the London-based Oil Depletion Analysis Centre and a former president of the UK Geological Society. He is talking about the day we no longer have enough oil to meet energy needs. The result is likely to be skyrocketing fuel prices and economic chaos-far worse than the worldwide recession caused by the oil shocks of the 1970s.

 

But this crisis isn't centuries away. The crunch point comes not when we have run all the oil wells dry, but when demand outstrips production. And a growing number of experts are warning that this is likely to happen within the next few years. "There is a growing consensus that we are heading for an imminent peak [in oil production], if not already past it," Hardman says.

In previous crises, new reserves always seem to have been found to make up the shortfall. But the declining rate at which new fields are being discovered suggests it won't happen this time, at least not for conventional oil(see Graphic). We now find just one barrel of oil for every four we consume. And with production already declining in the US and the North Sea, the world must rely increasingly on the politically volatile Middle East and other parts of the developing world(see Graphic).

So how long have we got? To estimate when the world will run short of oil, you need to know how much oil there is overall. In principle, this should be easy to calculate:geologists know which kinds of rock are likely to hold oil and they know where these reservoirs are and how big they are. "They know all the regions where it's possible to find oil by now," says Kjell Aleklett, physicist at Uppsala University, Sweden, and president of the Association for the Study of Peak Oil & Gas. "There are no new regions to be found."

Oil companies keep detailed information about individual basins secret, but most of the educated guesses made over the past few decades fall close to the same estimate:the world's oil reserves began with a total of about 2 trillion barrels(see Graphic)of which some 900 billion have now been used.

The 1.1 trillion barrels that remain represent about a 40-year supply at current consumption levels of about 25 billion barrels per year. At first glance this seems a comfortable cushion, but don't be fooled-we won't get the chance to use it all at anything like our present rate. The flow rate from any single oil well begins to decline as soon as production starts, because the pressure in the reservoir drops. Companies can maintain the flow for a while by injecting water to boost the pressure, but the flow inevitably dwindles and the last of the oil must be wrung out.

Good half of the pie

This means that the rate of production follows roughly a bell-shaped curve. The peak, whether from a single basin, a region, or the entire world, comes when about half the oil has been extracted-once most of the wells are in and before they taper off too much. After that, the rate falls inexorably. "It's not that you've eaten half the pie; you've eaten the good half of the pie," says Ali Samsam Bakhtiari, an expert with the National Iranian Oil Company. If production rates fall while demand continues to rise, oil prices are likely to spike or fluctuate wildly, raising the prospect of economic chaos, problems with transporting food and other supplies, and even war as countries fight over what little oil is available. "That's when all hell breaks loose," says James MacKenzie, an energy analyst at the World Resources Institute in Washington DC.

If the general consensus of a 2-trillion barrel reserve is correct, the world has almost finished the good half of the pie and this day of reckoning is not far off. Indeed, many prominent analysts, Aleklett included, foresee oil production peaking in the next 5 to 15 years, far too short a time to find alternative fuels, especially for transportation, and barely long enough to bring effective conservation measures into play.

Some believe the peak is already here. "I am 99 per cent confident that 2004 will be the top of the mathematically smoothed curve of oil production," says Kenneth Deffeyes, a geophysicist at Princeton University. And he believes the highest single year may already have passed. "2000 may stand as a blip above the curve and be in the Guinness Book of World Records." Other leading analysts, including Colin Campbell, founder of the Association for the Study of Peak Oil & Gas, have reached the same conclusion(see Graphic). These analysts use variations of a method pioneered by geophysicist Marion King Hubbert, now something of a folk hero for correctly predicting in 1956 the US production peak in the 1970s, despite widespread dismissal of the idea at the time.

Not even the optimists believe we have much more than 20 years to prepare for the peak, if demand grows at its historical norm of 2 per cent per year. In a recent analysis, the United States Geological Survey (USGS) controversially estimated the world's extractable oil at more than 3 trillion barrels. Based on that figure, the US Department of Energy calculates that oil production may not peak until 2037.

As well as predicting the discovery of new fields, USGS analysts tracked changes in estimated reserves for 33,000 known fields and found that they crept upwards over time, either because earlier estimates were too conservative or because technological improvements allowed the companies to extract more oil. Applying this reasoning worldwide, they forecast that known fields should yield 612 billion barrels beyond current expectations.

But will new technology wring enough oil out of existing fields to maintain production rates? "I don't buy it," says David Pursell, an energy analyst with Simmons & Company International, an investment banking firm in Houston, Texas, that specialises in the energy sector. "You've got to spend a ton of capital to get an extra 1 or 2 per cent out."

Others who favour later dates, such as Shell and Exxon, include less accessible, dirtier sources such as heavy oil. But using these sources would release even more carbon dioxide into the atmosphere than conventional oil, a price that many feel is too high(see "Can heavy oil avert an energy crisis?"). "The most important problem we face with oil is not its availability but its carbon," says MacKenzie. "We have to move away from fossil fuels if we are to deal with the climate issue."

Whatever the exact timing of the peak, we still need to find a new source of energy. "In the end there's no way to know who's right, but it doesn't matter," says Jeremy Rifkin of the Foundation on Economic Trends in Washington DC. "We're only arguing about 20 years. If we think oil is a problem now, just wait 20 years. It'll be a nightmare."