Introduction
The widely discussed theory that the world oil production will soon reach a peak and go into sharp decline, a new analysis of the subject by Cambridge Energy Research Associates (CERA) finds that the remaining global oil resource base is actually 3.74 trillion barrels. Three times as large as the 1.2 trillion barrels estimated by the theory’s proponents—and that the “peak oil” argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future ( 2007).
The peak oil debate continues to rage without any obvious progress. However, upon examination, the peak oil theory falls down because of serious flaws in logic and application. A plateau will occur-but not in the near future, and supply will not “run dry” soon thereafter. CERA hold that aboveground factors will play the major role in dictating the end of the age of oil.
The peak oil debate
The ‘peak oil’ theory causes confusion and can lead to inappropriate actions and turn attention away from the real issues, observes. Oil is too critical to the global economy to allow fear to replace careful analysis about the very challenges with delivering liquid fuels to meet the needs of growing economies. This is a very important debate, and as such, it deserves a rational and measured discourse ( 2002).
The “peak oil” argument is frequently supported with data indicating that new exploration finds are not sufficient to replace annual production. Their data sets have serious deficiencies. The peak argument is an incomplete and therefore misleading analysis because it ignores the role of development (vs. exploration) projects in expanding reserves, fails to understand economic factors that can point company and national strategies to emphasize development vs. exploration work (2007). By focusing on “discovery” and ignoring the increased knowledge and confidence about field volumes, it disregards the fact that revisions, additions, and exploration together have generated resource growth during the period from 1995 to 2003. CERA draws both on its own databases, which has the world’s most complete proprietary databases on oil production and resources.
How extensive is the problem?
The multiplying production (the barrels per year) times the oil price (the dollars per barrel) gives a total cost in dollars per year. It is an enormous number; tens of trillions of dollars per year. To put a scale on it, the three thin curves on the graph show the oil cost in contrast to the total world domestic product; the annual value the goods and services added up for all the world’s countries. The three curves show the oil cost at one percent, two and a half percent, and five percent of the total world economic output. Oil production obviously cannot consume 100 percent of the world’s income ( 2006). And while it is still impossible to answer the question of many people ask on how much time is left before the worldwide problem truly hit rock bottom, we might be able to use the price of oil and gas as some rough indicators of where this global catastrophe is. In addition, if prices do continue to rise at the current rate then any opportunity to make a large scale switchover to alternative sources of energy has, more or less, passed as 6-to-24 months is barely enough time to implement even the most remedial of large-scale mitigation strategies ( 2004 ).
The real oil problem
The problem is that the vast majority of the world’s remaining oil reserves are not possessed by private enterprises. Seventy-seven percent of known reserves belong to government-owned companies. That means oil will be produced with all the efficiency associated with central planning. Problems associated with world oil production peaking will not be temporary, and past ‘energy crisis’ experience will provide relatively little guidance and the challenge of oil peaking deserves immediate, serious attention, if risks are to be fully understood and mitigation begun on a timely basis (2002). The world has never faced a problem like this and without massive mitigation more than a decade before the fact; the problem will be pervasive and will not be temporary. Previous energy transitions were gradual and evolutionary and thus, oil peaking will be abrupt and groundbreaking.
Lastly, everybody is probably thinking, how much oil is left? Gas prices have been reaching record highs nearly every day this year and newly emerging studies suggest the recent run-up in gasoline prices may just be a shot across the bow. We must lose hope. And we as a nation must consider that the boundless of how much petroleum resides in the bowels of the earth, when the production of a given amount of fuel requires the industry to first consume the equivalent amount to discover, extract, refine, and deliver it—so it is not yet over.
Credit:ivythesis.typepad.com
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