Preparing for `peak oil'

April 29, 2007|By John A. Bewick

The world has a big problem: It's running out of oil. According to a recent Government Accountability Office report, the long-awaited "peak oil" crisis will certainly happen by 2040 - and may be happening right now.

Fortunately, President Bush has a strong energy plan in place that can be easily augmented to respond to concerns in both the oil industry and the global warming community.

According to the GAO, "Many studies indicate that oil production will peak between now and 2040." Eleven of the 20 studies referred to in the report show peak oil production occurring now. Further, it says, "more than 60 percent of the world oil reserves are in countries where relatively unstable political conditions could constrain oil exploration and production."

The GAO calls on the secretary of energy, in coordination with other relevant federal agencies, to establish a peak oil strategy.

Although this crisis has implications for everyone in the United States - and indeed, virtually everyone on the planet - the American public is barely aware of the issue. Some oil industry experts, such as Matt Simmons of Simmons & Co. in Houston, predict the imminent peaking of Saudi Arabia's oil production capacity.

Why does peak oil matter? For one thing, a shortage of oil to meet demand, such as occurred in the mid-1970s, could trigger a worldwide recession. Global demand for energy is projected to grow by about 1.6 percent annually through 2030. Current global demand for crude oil is 84 million barrels per day, but spare capacity to produce more crude is lower than historic averages - around 1 million barrels per day in 2006. If fast growth in demand occurs without drastic increases in supply, there will be a shortage in crude oil. Spiking prices and rationing of fuel could make the oil boycott of the 1970s look minor in comparison. There are now more developing countries, such as China and India, with enormous appetites for fuel. China's demand for energy has been growing at 7 percent per year since the 1990s, to support economic growth of more than 9 percent per year. In 2006, China imported 30 percent more oil than in 2005.

Next, new proven oil reserves and production capacity are not growing nearly as fast as demand, and the estimates of proven reserves contain huge uncertainties. In the United States, there is transparency because of reporting requirements. But 78 percent of worldwide oil is produced by state-owned companies not subject to similar disclosure requirements. So it is much harder to forecast when peak capacity will be reached and worldwide production will begin to decline.

In the United States, oil production peaked in 1970 at 9.6 million barrels per day and is now at 6.9 million barrels per day. The North Sea field, Mexico, Iran, Venezuela, Russia, Kuwait and Iraq have all passed peak conventional supply, according to Mr. Simmons. Declines can be steep after reaching a peak, especially if fields were drained too quickly and the geologic structure damaged.

Many are calling for a "Manhattan Project" on new energy technologies and energy efficiency. In a new twist on the old adage, "Politics makes strange bedfellows," oil industry experts worried about peak oil and environmental experts worried about global warming both support huge investments in these areas.

Let's examine the Bush administration's actions of the past several years. Mr. Bush dumbfounded his global warming critics in January when he announced a goal of producing 35 billion gallons of ethanol fuel in 2017, five times more than previous goal of 7.5 billion gallons in 2012. At the same time, he called for a 20 percent reduction in gas consumption by 2017. These bold goals are far from business as usual, and they're only the beginning.

The Department of Energy already has a broad-based R&D program on oil substitutes such as hydrogen fuel cells and batteries for hybrid cars. In February, Energy Secretary Samuel W. Bodman further announced $385 million in development grants to six demonstration biofuel refinery projects to test a different approach to creating ethanol from cellulosic and biomass sources at each site. (We simply don't have enough farmland in the United States to generate more than 15 billion gallons of ethanol per year from corn.)

Recently, Mr. Bush and Mr. Bodman met at the White House with firms developing innovative, fuel-efficient cars, including a plug-in hybrid with the potential to achieve 150 mpg. The Bush administration also proposed to increase federal funding of advanced energy research projects by 26 percent, to $2.7 billion annually. Previously, the administration committed to support a $1 billion project called FutureGen to demonstrate clean coal gasification technology.

The twin storms of an imminent peak oil crisis and a global warming crisis demand a vigorous, sustained response. U.S. leadership is needed in additional areas, such as worldwide efforts to cap greenhouse gas emissions. But in the key areas of R&D and setting energy goals, the White House is leading the way.

John A. Bewick, a consultant on global warming who graduated from Baltimore public schools, is a former Massachusetts secretary of environmental affairs. His e-mail is

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