Peering into oil’s future
Experts try to predict when the world will start running low on the natural resource that keeps all the engines running
Verne Kopytoff, Chronicle Staff Writer
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Sunday, March 21, 2004

The world began running out of oil soon after the birth of modern drilling during the 1850s. The question since then has always been: When will the spigot start drying up? Mounting evidence suggests that an important turning point may be close. According to several studies, oil production is expected to begin a permanent decline within a few years, prompting social and economic upheaval across the globe.
Or maybe not. A rival school of thought says that oil’s imminent demise is exaggerated and that crude will be plentiful into the near future.

Whom can you believe?

It all depends on how accurate researchers are in calculating such complex variables as future oil consumption, production and discovery.

“One has to be very skeptical about any prediction,” said David Goodstein, author of the recently published book “Out of Gas: The End of Oil,” and a physics professor at California Institute of Technology in Pasadena.

The numbers that some researchers are relying on “are extremely undependable” and are being put forth “by companies and countries that have strong interest in tilting them one way or another,” Goodstein said.

Worries over falling crude production inevitably arise when fuel prices spike, as they have recently. Oil futures, at $38.08 per barrel, are near a 13- year high, while the average price of a gallon of unleaded gasoline in California hit a record $2.18 earlier this month.

Historically, researchers have been woefully inept at predicting a permanent decline in global oil production. They have made dire forecasts since at least the 1920s, only to eat crow as pumping increased.

What researchers are trying to determine is when oil production will begin to taper off as a natural consequence of dwindling reserves. At some point, there just won’t be enough oil left to keep pumping increasing amounts from underground, analysts agree.

As it is, global oil production has grown most years since the turn of the last century. The world produced nearly 67 million barrels of oil a day in 2002, up 11 percent from a decade earlier, according to the U.S. Energy Information Administration. The added crude has fueled economies across the globe, including the United States, and enabled millions of new drivers to take to the road. Without the new supplies, oil and gasoline would undoubtedly cost a lot more.

But the era of abundance is in peril, judging from an important industry yardstick. More oil is being produced each year than discovered. It’s similar to when you spend more money than you bring in. Unless the pattern changes, your bank account will eventually run dry. The trend started in 1986, according to IHS Energy, an energy research firm based in Houston. The only exception since then was 1991, when a big field in the Persian Gulf, off the coast of Iran, was discovered.

“There are discoveries being made all the time, but they are smaller and smaller,” said Jim Meyer, director of the Oil Depletion Analysis Center, a London organization that disseminates information about the threat of dwindling supplies. “The big fields have all been found, or at least they’re few and far between.” If big reserves are to be found anywhere, they will likely be in the former Soviet Union and in the polar regions, according to analysts.Libya, Iran and Iraq, all of which have been largely unexplored in recent years, are also possibilities.

The ebb and flow of oil production is known as the “Hubbert’s Peak,” after M. King Hubbert, a Shell geologist. He gained fame for correctly predicting in 1956 that U.S. production would peak in the early 1970s and then decline. Hubbert’s theory is that oil production, when plotted on a chart, is a bell curve. Production rises quickly as big, cheap-to-operate fields open. It flattens out as those fields become depleted. New, smaller, more costly fields can’t offset the loss, leading to the curve’s inevitable decline.

Differing dates

Today’s generation of oil researchers is applying Hubbert’s principles to global production. They agree that pumping will eventually peak worldwide, but they differ widely on exactly when.

Colin Campbell, a retired geologist in Ireland who has worked throughout the oil industry, including Texaco, BP and Amoco, says the peak will come before 2010. It may be already happening, he said, given that global oil production has declined slightly since 2000. Some researchers say the drop is a temporary and deliberate response by oil producers to cut back because of the bad economy and lower demand.

Campbell, however, believes that virtually all nations are pumping at full capacity. “I think we may live to see that 2000 may have been the peak,” Campbell said. “We’re hitting capacity again now—oil prices are surging. It’s reasonable to think that by 2010, you will have a volatile period of recession, oil spikes and price shocks.”

The U.S. Energy Information Administration paints a different picture. The agency, part of the Department of Energy, pegged the peak at anywhere between 2021 and 2112. The wide time frame takes into account 12 scenarios. Different assumptions about production growth and reserve size produce different peaks.

The earliest peak, in 2021, is achieved with 3 percent annual growth in crude production and relatively low reserves. The latest peak, in 2112, assumes no production growth and big reserves.

Pete Stark, vice president of industry relations for IHS Energy, agrees with the Energy Information Administration that there is no immediate crisis. Production won’t crest until at least 2020, and probably much later, he said. “We don’t see it as much of a peak, but more of a plateau,” Stark said. “It’s not a calamitous situation. It’s one we have time to adjust to.”

The oil industry operates under the assumption that peak oil production is decades away, if not more. John Felmy, an economist with the American Petroleum Institute, an industry trade group, characterized more imminent forecasts as “Chicken Little predictions.”

Part of the reason researchers are so divided is that there is no standard formula to determine oil reserves. Instead, they rely on a range of estimates of how much oil is available to pump. For example, the U.S. Geological Survey says that there are up to 3.9 trillion barrels. Campbell estimates reserves at about half that amount.

The biggest known onshore and offshore reserves are in Saudi Arabia, followed by Canada and Iraq, according to the Oil & Gas Journal. Unreliable numbers Reserve figures provided by oil companies are often unreliable, according to some analysts. To meet Wall Street expectations, the companies sometimes understate or overstate the totals, the analyst said. In the past couple of weeks, for example, Royal/Dutch Shell has lowered the numbers for its proven reserves twice, for a total of more than 20 percent, forcing the resignation of the firm’s chairman. Company executives had designated some oil and natural gas as likely to be pumped when in fact drilling was questionable.

Securities and Exchange Commission rules require companies to include only oil that is “likely recoverable” in their proven reserves. However, the rules apply only to firms that trade publicly in the United States.

Getting clarity on reserves is further clouded by figures provided

by oil- producing countries with nationalized industries, according to analysts. Some countries, especially members of OPEC, have raised reserve estimates significantly without explanation or have reported the same reserves several years in a row, apparently failing to deduct ongoing drilling. “It’s a minefield,” said Meyer, from the Oil Depletion Analysis Center. Researchers generally factor additional oil from future discoveries into their calculations. But potential improvements in technology, such as the ability to drill deeper from offshore platforms and the extra oil it may produce, are not usually considered.

Analysts readily admit that future developments in the oil industry might require them to adjust their forecasts. Indeed, the peak in production may be further off than they currently believe, they concede.

However, pushing the date more than a few years into the future would require the discovery of vast quantities of oil, according to Meyer. Only finding the equivalent of a Saudi Arabia or two would make a significant difference, he said.

“Even if these near-term forecasts are off by a decade, this should still be of public concern,” Meyer said.

Some elected officials, including President Bush, have advocated opening parts of the Arctic National Wildlife Refuge in Alaska for drilling to help make the United States less dependent on imports and to help lower oil prices. An Energy Information Administration report released last week said up to 876, 000 barrels of crude a day could be produced in the refuge by 2025.

On a global scale, the amount would comprise less than 1 percent of all production expected in that year. The added drilling, if it ever happens, would do little to offset a decline in world oil production, according to analysts. Some of the analysts who foresee imminent drops in oil production advocate making greater use of alternative sources of energy, including nuclear, geothermal and biomass. They all call for conservation.

“One thing we could do now is use less oil now, and that can certainly help soften the blow and put off the peak,” said Goodstein, the author and Cal Tech professor. Felmy, the industry economist, said oil companies already have initiatives to develop fuel cells, windmills and solar and hydrogen power. He was especially enthusiastic about the potential for frozen methane, which he described as abundant in permafrost and underwater.

Stark, from IHS Energy, was sanguine about doomsday scenarios. Even in the improbable event that no new oil is discovered, he said, the world can continue consuming existing reserves at the current pace for another 106 years.

Table (1) Oil production and reserves

Some researchers are predicting that oil production will begin to decline within a few years. The following charts show current production and known reserves.

Top world oil producers, 2002 -- In millions of barrels per day

United States - 9.08
Saudi Arabia - 8.54
Russia - 7.65
Mexico - 3.61
Iran - 3.54
China - 3.37
Norway - 3.33
Canada - 2.94
Venezuela - 2.91
United Kingdom - 2.55
United Arab Emirates - 2.38
Nigeria - 2.12
Iraq - 2.04
Kuwait - 2.03

Table (2):. Countries with the biggest oil reserves, 2003 In billions of barrels

Saudi Arabia - 261.8
Canada - 180.02
Iraq - 112.5
United Arab Emirates - 97.8
Kuwait - 96.5
Iran - 89.7
Venezuela - 77.8
Russia - 60
Libya - 29.5
Nigeria - 24
United States - 22.67
China - 18.25
Qatar - 15.2
Mexico - 12.62.
Sources: Energy Information Administration, Oil & Gas Journal, Map: ESRICHART (3):

IS OIL PRODUCTION ABOUT TO DECLINE?

Oil production has mostly increased to satisfy the world?s growing appetite for crude. If predictions are correct, production may soon begin to decline, sending the line on this chart downward permanently.

Table (3)

World crude oil production, 1960-2002:
2002: 66.92 million barrels per day..
When will reserves start to decline?
Studies give a wide array of time frames for when oil production will peak. Following is a sampling of forecasts:
2000-2010: Colin Campbell, retired oil industry geologist
2004-2008: Kenneth Deffeyes, professor emeritus in geoscience,
PrincetonUniversity
2010-2020: International Energy Agency
2010-2025: Jean Laherrere, retired French oil executive and consultant
2021-2112: U.S. Energy Information AdministrationSource: Energy Information AdministrationChronicle Graphic