|WORLD: The End of Oil is Closer Than You Think|
April 21st, 2005
The one thing that international bankers don't want to hear is that the
second Great Depression may be round the corner. But last week, a group
of ultra-conservative Swiss financiers asked a retired English petroleum
geologist living in Ireland to tell them about the beginning of the end
of the oil age.
They called Colin Campbell, who helped to found the London-based Oil
Depletion Analysis Centre because he is an industry man through and
through, has no financial agenda and has spent most of a lifetime on the
front line of oil exploration on three continents. He was chief
geologist for Amoco, a vice-president of Fina, and has worked for BP,
Texaco, Shell, ChevronTexaco and Exxon in a dozen different countries.
"Don't worry about oil running out; it won't for very many years," the
Oxford PhD told the bankers in a message that he will repeat to
businessmen, academics and investment analysts at a conference in
Edinburgh next week. "The issue is the long downward slope that opens on
the other side of peak production. Oil and gas dominate our lives, and
their decline will change the world in radical and unpredictable ways,"
Campbell reckons global peak production of conventional oil - the kind
associated with gushing oil wells - is approaching fast, perhaps even
next year. His calculations are based on historical and present
production data, published reserves and discoveries of companies and
governments, estimates of reserves lodged with the US Securities and
Exchange Commission, speeches by oil chiefs and a deep knowledge of how
the industry works.
"About 944bn barrels of oil has so far been extracted, some 764bn
remains extractable in known fields, or reserves, and a further 142bn of
reserves are classed as 'yet-to-find', meaning what oil is expected to
be discovered. If this is so, then the overall oil peak arrives next
year," he says.
If he is correct, then global oil production can be expected to decline
steadily at about 2-3% a year, the cost of everything from travel,
heating, agriculture, trade, and anything made of plastic rises. And the
scramble to control oil resources intensifies. As one US analyst said
this week: "Just kiss your lifestyle goodbye."
But the Campbell analysis is way off the much more optimistic official
figures. The US Geological Survey (USGS) states that reserves in 2000
(its latest figures) of recoverable oil were about three trillion
barrels and that peak production will not come for about 30 years. The
International Energy Agency (IEA) believes that oil will peak between
"2013 and 2037" and Saudi Arabia, Kuwait, Iraq and Iran, four countries
with much of the world's known reserves, report little if any depletion
of reserves. Meanwhile, the oil companies - which do not make public
estimates of their own "peak oil" - say there is no shortage of oil and
gas for the long term. "The world holds enough proved reserves for 40
years of supply and at least 60 years of gas supply at current
consumption rates," said BP this week.
Indeed, almost every year for 150 years, the oil industry has produced
more than it did the year before, and predictions of oil running out or
peaking have always been proved wrong. Today, the industry is producing
about 83m barrels a day, with big new fields in Azerbaijan, Angola,
Algeria, the deep waters of the Gulf of Mexico and elsewhere soon
expected on stream.
But the business of estimating oil reserves is contentious and
political. According to Campbell, companies seldom report their true
findings for commercial reasons, and governments - which own 90% of the
reserves - often lie. Most official figures, he says, are grossly
unreliable: "Estimating reserves is a scientific business. There is a
range of uncertainty but it is not impossible to get a good idea of what
a field contains. Reporting [reserves], however, is a political act."
According to Campbell and other oil industry sources, the two most
widely used estimates of world oil reserves, drawn up by the Oil and Gas
Journal and the BP Statistical Review, both rely on reserve estimates
provided to them by governments and industry and do not question their
Companies, says Campbell, "under-report their new discoveries to comply
with strict US stock exchange rules, but then revise them upwards over
time", partly to boost their share prices with "good news" results. "I
do not think that I ever told the truth about the size of a prospect.
That was not the game we were in," he says. "As we were competing for
funds with other subsidiaries around the world, we had to exaggerate."
Most serious of all, he and other oil depletion analysts and petroleum
geologists, most of whom have been in the industry for years, accuse the
US of using questionable statistical probability models to calculate
global reserves and Opec countries of drastically revising upwards their
reserves in the 1980s.
"The estimates for the Opec countries were systematically exaggerated in
the late 1980s to win a greater slice of the allocation cake. Middle
East official reserves jumped 43% in just three years despite no new
major finds," he says.
The study of "peak oil" - the point at which half the total oil known to
have existed in a field or a country has been consumed, beyond which
extraction goes into irreversible decline - used to be back-of-the
envelope guesswork. It was not taken seriously by business or
governments, mainly because oil has always been cheap and plentiful.
In the wake of the Iraq war, the rapid economic rise of China, global
warming and recent record oil prices, the debate has shifted from "if"
there is a global peak to "when".
The US government knows that conventional oil is running out fast.
According to a report on oil shales and unconventional oil supplies
prepared by the US office of petroleum reserves last year, "world oil
reserves are being depleted three times as fast as they are being
discovered. Oil is being produced from past discoveries, but the
re-serves are not being fully replaced. Remaining oil reserves of
individual oil companies must continue to shrink. The disparity between
increasing production and declining discoveries can only have one
outcome: a practical supply limit will be reached and future supply to
meet conventional oil demand will not be available."
It continues: "Although there is no agreement about the date that world
oil production will peak, forecasts presented by USGS geologist Les
Magoon, the Oil and Gas Journal, and others expect the peak will occur
between 2003 and 2020. What is notable ... is that none extend beyond
the year 2020, suggesting that the world may be facing shortfalls much
sooner than expected."
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