To see this story with its related links on the Guardian Unlimited
site, go to http://www.guardian.co.uk Mark D. Wagner.
The end of oil is closer than you think
Oil production could peak next year, reports John Vidal. Just kiss your
lifestyle goodbye
John Vidal
Thursday April 21 2005
The Guardian
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 o
n the other side of peak production. Oil and gas dominate our lives,
and their decline will change the world in radical and unpredictable
ways," he says.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 c
ost 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 con
sumption 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 re
serves, 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 accuracy.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 i
n 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 reserves 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."According to Bill Powers, editor of the Canadian Energy
Viewpoint investment journal, there is a growing belief among
geologists who study world oil supply that production "is soon headed into an
irreversible decline ... The US government does not want to admit
the reality of the situation. Dr Campbell's thesis, and those of
others like him, are becoming the mainstream."In the absence of reliable
official figures, geologists and analysts are turning to the grandfather
of oil depletion analysis, M King Hubbert, a Shell geologist who in 1956
showed mathematically that exploitation of any oilfield follows a
predictable "bell curve" trend, which is slow to take off, rises steeply,
flattens and then descends again steeply. The biggest and easiest
exploited oilfields were always found early in the history of exploration,
while smaller ones were developed as production from the big fields
declined. He accurately predicted that US domestic oil production would peak
around 1970, 40 years after the period of peak discovery around
1930.Many oil analysts now take the "Hubbert peak" model seriously, and the
USGS, national and oil company figures with a large dose of salt. Similar
patterns of peak discovery and production have been found through
out all the world's main oilfields. The first North Sea discovery was
in 1969, discoveries peaked in 1973 and the UK passed its production
peak in 1999. The British portion of the basin is now in serious decline
and the Norwegian sector has levelled off.Other analysts are also
questioning afresh the oil companies' data. US Wall street energy group
Herold last month compared the stated reserves of the world's leading oil
companies with their quoted discoveries, and production levels. Herold
predicts that the seven largest will all begin seeing production
declines within four years. Deutsche Bank analysts report that global oil
production will peak in 2014.According to Chris Skrebowski, editor of
Petroleum Review, a monthly magazine published by the Energy Institute in
London, conventional oil reserves are now declining about 4-6% a year
worldwide. He says 18 large oil-producing countries, including Britain,
and 32 smaller ones, have declining production; and he expects Denmar
k, Malaysia, Brunei, China, Mexico and India all to reach their peak
in the next few years."We should be worried. Time is short and we are
not even at the point where we admit we have a problem," Skrebowski says.
"Governments are always excessively optimistic. The problem is that the
peak, which I think is 2008, is tomorrow in planning terms."On the
other hand, Equatorial Guinea, Sao Tome, Chad and Angola are are all
expected to grow strongly.What is agreed is that world oil demand is surging.
The International Energy Agency, which collates national figures and
predicts demand, says developing countries could push demand up 47% to
121m barrels a day by 2030, and that oil companies and oil-producing
nations must spend about $100bn a year to develop new supplies to keep
pace.According to the IEA, demand rose faster in 2004 than in any year
since 1976. China's oil consumption, which accounted for a third of extra
global demand last year, grew 17% and is expected to double over
15 years to more than 10m barrels a day - half the US's present
demand. India's consumption is expected to rise by nearly 30% in the next
five years. If world demand continues to grow at 2% a year, then almost
160m barrels a day will need to be extracted in 2035, twice as much as
today.That, say most geologists is almost inconceivable. According to
industry consultants IHS Energy, 90% of all known reserves are now in
production, suggesting that few major discoveries remain to be made. Shell
says its reserves fell last year because it only found enough oil to
replace 15-25 % of what the company produced. BP told the US stock
exchange that it replaced only 89% of its production in 2004.Moreover, oil
supply is increasingly limited to a few giant fields, with 10% of all
production coming from just four fields and 80% from fields discovered
before 1970. Even finding a field the size of Ghawar in Saudi Arabia, by
far the world's largest and said to have another 125bn barrels, woul
d only meet world demand for about 10 years."All the major discoveries
were in the 1960s, since when they have been declining gradually over
time, give or take the occasional spike and trough," says Campbell. "The
whole world has now been seismically searched and picked over.
Geological knowledge has improved enormously in the past 30 years and it is
almost inconceivable now that major fields remain to be found."He accepts
there may be a big field or two left in Russia, and more in Africa, but
these would have little bearing on world supplies. Unconventional
deposits like tar sands and shale may only slow the production decline."The
first half of the oil age now closes," says Campbell. "It lasted 150
years and saw the rapid expansion of industry, transport, trade,
agriculture and financial capital, allowing the population to expand six-fold.
The second half now dawns, and will be marked by the decline of oil and
all that depends on it, including financial capital."So did the
Swiss bankers comprehend the seriousness of the situation when he
talked to them? "There is no company on the stock exchange that doesn't
make a tacit assumption about the availability of energy," says Campbell.
"It is almost impossible for bankers to accept it. It is so out of
their mindset."Crude alternatives"Unconventional" petroleum reserves, which
are not included in some totals of reserves, include:Heavy oilsThese
can be pumped just like conventional petroleum except that they are much
thicker, more polluting, and require more extensive refining. They are
found in more than 30 countries, but about 90% of estimated reserves
are in the Orinoco "heavy oil belt" of Venezuela, which has an estimated
1.2 trillion barrels. About one third of the oil is potentially
recoverable using current technology.Tar sandsThese are found in sedimentary
rocks and must be dug out and crushed in giant opencast mines. But it
takes five to 10 times the energy, area and water to mine, process
and upgrade the tars that it does to process conventional oil. The
Athabasca deposits in Alberta, Canada are the world's largest resource,
with estimated reserves of 1.8 trillion barrels, of which about 280-300bn
barrels may be recoverable. Production now accounts for about 20% of
Canada's oil supply.Oil shalesThese are seen as the US government's
energy stopgap. They exist in large quantities in ecologically sensitive
parts of Colorado, Wyoming and Utah at varying depths, but the industrial
process needed to extract the oil demands hot water, making it much
more expensive and less energy-efficient than conventional oil. The mining
operation is extremely damaging to the environment. Shell, Exxon,
ChevronTexaco and other oil companies are investing billions of dollars in
this expensive oil production method.Talk about it: What do we do when
the oil runs out?
Copyright Guardian Newspapers Limited
Note from Mark:
We must sail before the
world's oil is gone.
