EDITORIAL:
'Peak oil': Apocalypse now?

by Peter Westmore

News Weekly, June 21, 2008
Doomsday predictions that the world is on the verge of running out of oil are unfounded.

With crude oil prices soaring above $US135 a barrel, there has been growing speculation that the world's oil production is approaching a peak, and the future will involve a bitter struggle for oil resources which will continue to push up the price of increasingly scarce fuel for many years.

The "peak oil" theory originated with an American geologist, M. King Hubbert, who in 1956 accurately predicted that American oil production would peak 10 to 15 years later.

Since then, the peak oil theorists have included an unusual collection of the main oil-exporting countries from the Middle East, radical environmentalists and some of the oil producers. All of them, for different reasons, want us to believe that global oil production is either declining, or shortly to go into decline.

With the recent surge in oil prices, the peak oil theory has been given a strong impetus, with numerous articles in newspapers, TV features and books with titles such as The Empty Tank and The End of the Oil Age.

In 1974, Professor Hubbert predicted that global oil production would peak in 1995. His prediction was proven wrong as oil production continued to increase, and is now about 85 million barrels a day.

Production limit

Two years ago, an Iranian academic and former oil company executive, Dr Ali Bakhtiari, told a conference in Sydney that the world had reached the limit of oil production. However, Jean-Jacques Mosconi, research head for the French oil company Total, recently said that daily oil production would increase to between 95 and 100 million barrels, by 2020. (Reuters, June 2, 2008).

A recent research study by Cambridge Energy Research Associates also suggested that oil production would continue to rise over the next decade, and BP's chief economist Peter Davies told a British parliamentary group on peak oil last January that peaks in world production had been wrongly predicted throughout history.

He suggested that world oil production would peak as demand weakened, because of political constraints (including taxation and government efforts to reduce greenhouse gas emissions) rather than limited supply. (London Times, 18 January 2008).

World oil resource base estimates have trended upward over the years, from 600 billion barrels in the early 1940s to the 3,900 billion barrels estimated this year by the US Geological Survey (USGS).

Even over recent weeks, there have been new announcements in Australia of expanded oil and gas development, including the development of a major natural gas field from the coalfields of the Surat Basin in south Queensland, and oil-drilling off the coast of Newcastle, NSW.

Why then have oil prices soared over the past six months?

The answer is not due to shortages of crude oil. Tim Evans, an energy futures analyst at Citigroup's Futures Perspective, has shown that world oil production was up 2.5 per cent in the first quarter of 2008 over the same period in 2007 while world oil consumption rose by just 2 per cent. In fact, world production is expected to be 3.3 per cent higher in the second quarter and 4.1 per cent higher in the third quarter of 2008 than the same periods a year ago.

On the other hand, world demand is projected to rise by just 1.6 percent over the next six months.

The current price surge is due to the declining value of the US dollar which encourages oil producers to limit supply, political uncertainties (particularly in the Middle East) and supply uncertainties, including lack of refining capacity.

Barry Sergeant, a South African analyst, recently drew attention to energy supply-side bottlenecks: "overproduction of sour relative to sweet crude oil, given global refinery balances; increasing over-demand for diesel relative to gasoline, given fast-rising sales of diesel passenger autos in Western Europe, and, in deep-water drilling, reports that up to 80% of [oil-drilling] rigs in the world have been taken into service off Brazil."

Daniel Yergin from Cambridge Energy recently noted that this is the third time since 1970 that oil prices have rocketed upwards; but despite adverse temporary consequences he expects them to fall eventually.

Fears that the world is fast running out of resources is a long-standing fallacy, which first became popular in the early 1800s, when the Revd. Thomas Malthus predicted global starvation in his book, The Principle of Population. Malthus's ideas aggravated the Irish Famine, which killed millions in the 1840s.

Malthus's disciples have included Charles Darwin, Julian Huxley, Paul Ehrlich, the Club of Rome, and others. Professor Ehrlich predicted, in the late 1960s, that hundreds of millions would die from a coming overpopulation crisis in the 1970s, and that by 1980 inhabitants of the United States would have a life-expectancy of only 42 years.

Doomsday predictions that the earth faces imminent exhaustion of food, energy, minerals, timber and other resources, and that the natural environment is being destroyed, have repeatedly been invalidated by the ingenuity of mankind.

- Peter Westmore is national president of the National Civic Council.