It's called the “peak oil” theory, and ever since American geologist M. King Hubbert developed it in 1956, oil experts have been divided into two camps — those who believe Earth's oil supplies have peaked, and those who don't.
If proponents of the theory are correct — that the world has used up half of the planet's oil stocks and the remaining supplies will face rapid depletion — the future promises even higher prices and more energy shocks. But critics of the theory say the high point in oil production is still 20 or 30 years away, that oil production is not likely to decline precipitously thereafter and that political events and energy prices — not hydrocarbon shortages — will dictate the industry's course until near the mid-century mark.
According to industry estimates, world oil reserves increased by 24 billion barrels during 2006 to 1.3 trillion barrels — a gain of about 2 percent over 2005. Reserve estimates are periodically recalculated based on new geological and engineering data and new discoveries. But the 2006 increase cannot be documented because two of the countries reporting the greatest increases were Iran and Saudi Arabia, and their governments don't let outsiders check their figures.
“No one knows the amount of oil really contained in reservoirs,” says Leonardo Maugeri, an economist and oil industry analyst with the Italian oil and gas company ENI. Such knowledge evolves over time after new wells are drilled and more sophisticated technology is developed.
“In fact,” he adds, “countries such as Saudi Arabia or Iraq (which together hold about 35 percent of the world's proven reserves of oil) produce petroleum only from a few old fields, although they have discovered, but not developed, more than 50 new fields each.”
The peak oil argument begins with the controversial 1956 prediction by Hubbert that oil production from the lower U.S. 48 states would top out in 1968. The actual peak occurred two to four years later, depending on which measure of oil production is used. As a result of Hubbert's controversial prediction, “He found himself being harassed and vilified,” says one of Hubbert's champions, Chris Skrebowski, editor of the monthly magazine Petroleum Review, published by the Energy Institute in London.
But Peter M. Jackson, a director of the international research firm Cambridge Energy Research Associates (CERA), argues Hubbert erred in not considering how new drilling technologies could increase output from older fields or how energy prices affect exploration and production.
He is even more critical of Hubbert's present-day disciples who say an oil field peaks when half of its available oil has been extracted. Their model is illustrated with a simple, smoothly rising and falling bell-shape curve.
Jackson says Hubbert's curve ignores the typical expansion of oil field dimensions as more exploration and development occurs. Oil production from the lower 48 states since 1970 has been 66 percent higher and 15 billion barrels greater that Hubbert predicted, Jackson writes, citing U.S. Geological Survey findings and his company's oil field analysis.
When admittedly high-priced, “unconventional” sources such as shale and tar sands or Arctic fields are counted, the world's total supply of oil is 4.8 trillion barrels, Jackson stated. That is enough, at current growth rates, to delay a peak until 2030 or later, and even then, the peak will not be followed by a sharp decline, he said.
BP chief economist Peter Davies complains that Hubbert's theory also ignores the impact of increased conservation and the switching to alterative fuels that occurs as oil prices rise, which tend to extend oil supplies. Since 1980, for instance, the world's economic output has doubled while oil consumption has only increased by a third, he noted in a June 14, 2006, speech in London. “Year by year, a combination of exploration, investment and the application of technology is ensuring that every unit of oil and gas that is produced is replaced by new proved reserves,” he said.
Jackson likened peak oil advocates to sidewalk doomsayers who predict the end of the world. “Peakists continue to criticize those who disagree, but their projections of the date of the peak continue to come and go,” he said in his CERA report. “One of the most recent peak oil dates was supposed to have occurred just after the U.S. Thanksgiving Day 2005, and we still wait for the evidence.”
Skrebowski replied furiously that Jackson and the anti-peak oil crowd were either Polyannas or paid shills for an oil industry that must persuade investors that untapped oil abounds.
But, when one gets beyond the name calling, the two sides appear less far apart. Skrebowski says Jackson's 4.8 trillion barrels may be technically available “but is only of interest if it can be discovered, mobilised and marketed within a reasonable time period. “This,” he says, “is the entire debate: Can all the unfound and unproven resources be exploited quickly enough to more than offset the peaking and decline of the known and proven reserves?”
A leading peak oil advocate, Dallas energy financier Matthew R. Simmons, argues that Saudi Arabia's reserves are being greatly overestimated. But he also says more than half the world's conventional oil and a larger share of its unconventional oil remain to be extracted. “What the world is running out of is cheap oil — the $20 oil we built our civilization around,” he writes.
That sounds close to the views of CERA chairman Daniel Yergin. However, he asks, will economics and government decisions in a politicized oil world permit enough new exploration and production to keep pipelines full?
Although energy companies will be prospecting in more difficult environments, he says, “the major obstacle to the development of new supplies is not geology but what happens above ground: namely, international affairs, politics, decision-making by governments and energy investment and new technological development.”