Guardian (UK)
September 27, 2005

BETTER TO CRY WOLF NOW THAN TO WAIT UNTIL OIL HAS RUN OUT

No one knows how much is left, but humankind can't wait any longer
before coming up with alternatives

By George Monbiot

Are global oil supplies about to peak? Are they, in other words, about
to reach their maximum and then go into decline? There is a simple
answer to this question: no one has the faintest idea.

Consider these two statements: 1. "Last year Saudi Aramco made
credible claims that as much as 500bn-700bn barrels remain to be
discovered in the kingdom." 2. "Saudi Arabia clearly seems to be
nearing or at its peak output and cannot materially grow its oil
production."

The first comes from a report by Energy Intelligence, a consultancy
used by the major oil companies. The second comes from a book by
Matthew Simmons, an energy investor who advises the Bush
administration. Whom should we believe? I have now read 4,000 pages of
reports on global oil supply, and I know less about it than I did
before I started. The only firm conclusion I have reached is that the
people sitting on the world's reserves are liars.

In 1985 Kuwait announced that it possessed 50% more oil than it had
previously declared. Had it just discovered a new field? Had it
developed a new technology that could extract more oil from the old
fields? No. OPEC, the price-fixing cartel to which it belongs, had
decided to allocate production quotas to its members based on the size
of their reserves. The bigger your stated reserve, the more you were
allowed to produce. The other states soon followed Kuwait, adding a
total of 300bn barrels to their reserves: enough, if it existed, to
supply the world for 10 years. And their magic oil never runs out.
Though extraction has long outstripped discovery, Kuwait posts the
same reserves today as it claimed in 1985.

So we turn to the US Geological Survey for an answer, and find that
its estimates of global oil supply are as reliable as the Pentagon's
assessments of Iraqi weapons of mass destruction. In 1981 it said we
possessed 1,719bn barrels of oil. In 2000, 2,659. Yet the discovery of
major oilfields peaked in 1964. Where has it come from?

It is true to say that oil reserves are not fixed. As technology
improves or the price increases, oil that was formerly too expensive
to extract becomes available. But the oil geologist Jean Laherrère
points out that the survey's estimate "implies a five-fold increase in
discovery rate and reserve addition, for which no evidence is
presented. Such an improvement in performance is in fact utterly
implausible, given the great technological achievements of the
industry over the past 20 years, the worldwide search, and the
deliberate effort to find the largest remaining prospects."

The current high oil prices are the result of a shortage of refineries
-- exacerbated by the hurricanes in the Gulf of Mexico -- rather than
a global shortage of crude. But behind that problem lurks another.
Last week Chris Vernon of the organization PowerSwitch published
figures showing that while total global oil production has risen since
2000, the production of light sweet crude -- the kind that is easiest
to refine into motor fuels -- has fallen, by 2m barrels a day. This
grade, he claims, has already peaked. The refinery crisis results
partly from this constraint: there aren't enough plants capable of
processing the heavier grades.

And next in the queue? Who knows? All I can say is that George Bush
himself does not appear to share the US Geological Survey's optimism.
"In terms of world supply," he said in March, "I think if you look at
all the statistics, demand is outracing supply, and supplies are
getting tight." What has he seen that we haven't?

If the figures have been fudged, we're stuffed. That might sound
extreme, but it is not my conclusion. It is that of the consultants
hired by the US department of energy. In February this year the
department released a report called Peaking of World Oil Production:
Impacts, Mitigation and Risk Management. I say "released", for it was
never properly published. For several months the only publicly
available copy was lodged on the website of the Hilltop high school in
Chula Vista, California.

The department's consultants, led by the energy analyst Robert L
Hirsch, concluded that "without timely mitigation, the economic,
social and political costs will be unprecedented". It is possible to
reduce demand and to start developing alternatives, but this would
take "10-20 years" and "trillions of dollars". "Waiting until world
oil production peaks before taking crash program action leaves the
world with a significant liquid fuel deficit for more than two
decades", which would cause problems "unlike any yet faced by modern
industrial society".

Of course, we have been here before. Oil analysts and
environmentalists have warned of disappearing reserves ever since
drilling began, and they have always been proved wrong. According to
people such as the Danish statistician Bjorn Lomborg, this is because
the industry is self-regulating. "High real prices deter consumption
and encourage the development of other sources of oil and non-oil
energy supplies," he says. "Since searching costs money, new searches
will not be initiated too far in advance of production. Consequently,
new oilfields will be continuously added as demand rises... we will
stop using oil when other energy technologies provide superior
benefits."

It is beginning to look as if he is wrong on all counts. As the
Economist magazine pointed out on September 10, "demand for petrol is
pretty inelastic in the short term", because people still have to go
to work, however much it costs. According to the analyst it cites, "it
would take a doubling of petrol prices to reduce American petrol
consumption by just 5%".

Lomborg's idea that companies can just go out and find new oil when
demand rises suggests that he believes geology is as malleable as
statistics. One day -- or so we should hope -- a superior technology
will certainly emerge, but cheap alternatives to liquid fuels are
currently decades away. Yes, the pessimists have been crying wolf for
almost a century. But better that, perhaps, than crying "sheep" when
the wolves appear.

The Hirsch report has no truck with those who believe in the magic of
the markets. "High prices do not a priori lead to greater production.
Geology is ultimately the limiting factor." There are plenty of oil
shales, tar sands and coal seams available for turning into liquid
fuels, but it would take years and a massive investment before enough
came online. Hirsch compares the projections of the oil optimists to
those of the gas optimists in the late 1990s, who promised "growing
supply at reasonable prices for the foreseeable future" in the US and
Canada. Today the same people are bemoaning the deficit. "The North
American natural gas market is set for the longest period of sustained
high prices in its history, even adjusting for inflation... Gas
production in the United States (excluding Alaska) now appears to be
in permanent decline."

"The bottom line," Hirsch says, "is that no one knows with certainty
when world oil production will reach a peak, but geologists have no
doubt that it will happen." Our hopes of a soft landing rest on just
two propositions: that the oil producers' figures are correct, and
that governments act before they have to. I hope that reassures you.

Copyright 2005 Guardian Newspapers Limited