Oil crisis? Depends on who you ask

Easy-to-reach oil on decline, but global supply plentiful and 'likely to grow'

Scott Simpson
Vancouver Sun
Wednesday, November 15, 2006

In sharp contrast to popular doomsday scenarios in which an oil supply crash triggers a global economic crisis, a U.S. energy think tank says the world has almost four times the oil supply envisioned by the pessimists.

Cambridge Energy Research Associates states in a report released Tuesday that so-called "peak oil" theories are not only wrong, they're threatening efforts to develop new sources of supply.

The report was written by CERA oil industry activity director Peter Jackson, a former oil exploration geologist who estimates total global oil supply at 3.72 trillion barrels and "likely to grow" larger. That opinion contradicts peak oil proponents who say the world has 1.2 trillion barrels left in the ground.

Jackson pegs total global consumption of oil since the modern "oil era" began in the 1850s at 1.08 trillion barrels, and believes a shift to alternative fuel supplies will take place "in slow motion" with minimal impact upon the global economy.

Peak oil theory was first proposed 57 years ago by a Shell Oil geologist, M. King Hubbert, who correctly predicted that U.S. production of conventional oil would reach its peak output in 1970 and decline thereafter.

Many scenarios based on Hubbert's work have appeared since, suggesting the cost of energy will rocket as supplies dwindle. Proponents of this line of reasoning say an ill-prepared world could face rampant inflation, the collapse of national governments and global warfare.

An ad hoc international group called ASPO, or Association for the Study of Peak Oil, has propounded on Hubbert's theory to a wide range of audiences, including B.C.'s pulp and paper industry, and the U.S. House of Representatives.

Even the U.S. Army Corps of Engineers has suggested that competition between nations for increasingly scarce oil resources could degenerate into conflict, warning that "oil wars are certainly not out of the question."

Jackson says in the report that the debate about future oil supplies is "one of the most important issues facing not only the energy industry, but the world at large."

"If world oil production were to enter a sharp downward spiral in the next several years, the ramifications for the global economy and geopolitics would be severe and potentially catastrophic," Jackson acknowledges.

He also agrees that at some future point -- "no sooner than 2030" -- the production of conventional or easy-to-reach oil will "struggle to meet demand." That will open the door for alternative supplies such as deep-sea oil or oil shale extraction and even-greater development of Canada's oilsands.

However, Jackson notes that U.S. production never fell from its 1970 peak with the speed Hubbert predicted -- in fact, "production in 2005 in the Lower 48 [states] of the United States was 66 per cent higher than Hubbert projected."

"Hubbert's methodology falls down because it does not consider likely resource growth, application of new technology, basic commercial factors, or the impact of geopolitics on production," Jackson says.

He agrees that the annual volume of oil discovered in recent years is "relatively low" -- but attributes the situation to a reduction in spending on exploration, not a lack of success in finding new supplies.

"Oil is too critical to the global economy to allow fear to replace careful analysis about the very real challenges with delivering liquid fuels to meet the needs of growing econ-omies."

He says there is "a whole spectrum" of predicted dates for the peak, including 2005, 2007, and 2012 "but we suspect that these, like so many others, will pass without any explanation."

Meanwhile, he argues that "persistent, but unfulfilled, calls that a global peak is immediate will not lead to rational, long-term investment, policies, and planning."

CERA's founder is Daniel Yergin, whose 1992 Pulitzer Prize-winning book on the history of the oil industry, The Prize: The Epic Quest for Oil, Money & Power, was later adapted for a PBS-BBC television series.

Simon Fraser University professor Mark Jaccard, an economist specializing in sustainable energy systems, agreed that peak oil theories are overstating the situation.

Jaccard, author of Sustainable Fossil Fuels, an award-winning book on prospects for conversion of coal into a liquid fuel, echoes CERA in noting that the world has faced many supposed energy crises without the sort of consequences envisioned by peak oil proponents.

Jaccard said the proponents tend to focus on the decline in supply of easy-to-reach or conventional oil, while overlooking opportunities to develop alternatives, in order to bolster their argument.

"It is easy oil whose supplies are getting tighter, but we have a heck of a lot of less-easy ways of getting the same products."

Jaccard noted that many less accessible supplies are now in production.

"We already produce gasoline from natural gas, sugar cane, oil sands, heavy oil and coal. Each of these taps can be turned on more fully, and indeed this is what investment shows is happening right now."

Jaccard, a former chairman of the B.C. Utilities Commission who also investigated gasoline pricing on behalf of the provincial government, also rejects claims that oil prices will skyrocket and stay at levels that would prove economically disastrous for national economies.

"To say that we would have sustained oil prices in the $100 to $200 US per barrel range -- and that those prices would persist for a decade or more -- is ludicrous right now.

"Economies have too many feedback effects, on the supply and demand side, for such high prices to be sustained. Peak oil people focus on conventional oil supplies and forget the ability to substitute other supplies as prices rise."

ssimpson@png.canwest.com