We had better start preparing for a decline in global oil supply
By George Monbiot. Published in the Guardian 27th September 2005
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 500 billion-700 billion 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(1). The second comes from a book by Matthew Simmons, an energy investor who advises the Bush administration(2). Whom should we believe? I have now read 4000 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, which 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(3). The other states soon followed Kuwait, adding a total of 300 billion barrels to their reserves(4): 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(5).
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 1719 billion barrels of oil(6). In 2000, 2659(7). Yet the discovery of major oil fields peaked in 1964(8). 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 Laherrere 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 twenty years, the worldwide search, and the deliberate effort to find the largest remaining prospects.”(9)
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 organisation 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 two million barrels a day(10). 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 Bush himself does not appear to share the 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.”(11) 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, & Risk Management”.(12) I say “released”, for it was never properly published. For several months th