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Oil Exploration and Production Constraints

Acknowledging Peak Oil

In the last few months, the vigorous debate over the future of world oil supplies has hit the mainstream radar screen. The optimists closed ranks-they have to because their numbers are shrinking-and launched a barrage of misleading reports and opinion pieces, suggesting that supplies will grow from today’s 85 million barrels a day to as much as 115 mb/day by 2030.

Columnist George F. Will published the latest salvo in yesterday’s Washington Post. The title, “Awash in Fossil Fuels,” says it all. Will knows little about the oil industry, he’s just bloviating-but his piece will reach hundreds of thousands of readers. Stylistically, most of the bullish articles are fact-free, mere arm-waving. They never say, “Twenty-one nations produce 85% of the world’s oil, and production in half is flat or falling.” They don’t say, “The most common ritual in America is the humble fill’up. It happens 25 million times a day. Increasingly, however, American motorists will be bidding against first-time drivers in China or India.” Indeed, U.S. oil consumption is already down by 2 million barrels a day in just two years.

Instead, they tell the reader a fairy tale, as they would any restless child: “A long, long time ago, someone said the world would run out of oil and they were wrong. The wolf didn’t come then, and won’t come now. The wolf fell into the tar sands. Three-D seismic killed the wolf. Tupi killed the wolf. Jump back, Jack2.”

The peak oil community-armed with puny BB guns-fires back with compelling facts and cogent arguments and sobering production curves. But they’ve recently been joined by some surprising allies: senior petroleum industry officials, consultants and analysts, some of whom are featured on the videos ASPO-USA posted this weekend on our website and YouTube. We think of these serious-minded critics as the Harsh Realists.

If the implications weren’t so serious, this tempest-in-a-teapot wouldn’t matter. But it does matter, big-time, to both the living and yet-to-be-born. Consider: in April 2008, Saudi Arabia’s King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world’s top exporter for future generations… “When there were some new finds, I told them, ‘no, leave it in the ground, with grace from god, our children need it.'” In his own quiet way, the King is a harsh realist.

The Harsh Realists


Christophe de Margerie, CEO of French oil company Total SA: “When I still hear people say we will develop more than 100 million barrels of day of production, I want them to come here, now, and tell me where is it going to come from? Because it is not possible.” Last February, he added, “World oil production may plateau below 90 million barrels a day.”

Starting around 2005, and accelerating most recently, this growing cast of industry experts has weighed in with their own straight talk. Here’s a short sample of their voices Will has probably never heard.

James Mulva, CEO of ConocoPhillips, said at a recent conference in London that he shared de Margerie’s concerns. Mulva is on record as saying that world oil production would not reach 100 mb/day. (Authors’ note: We are willing to wager George Will or anyone else $10,000 that it won’t.”)

John Hess, CEO of super independent Hess Corp: “If we do not act now, we will have a devastating oil crisis in the next 5-to-10 years.”

Ray Leonard, former VP with Russian and Kuwaiti oil companies: “The [peak oil] proponents are right about the fact that the world is not going to be growing oil production, but the constraint here is not just about geology. It’s also about politics and the way the world operates.”

Marshall Adkins, managing director of energy research for Raymond James & Associates: “Clearly there is a lot of excess capacity within OPEC today, and it’s going to take years to work that off, given the reduction we’ve seen in global oil demand…[But] our numbers show that the [world oil production] peak was in 2008.” Adkins believes that most of the investment community, the smart money, is aware of the looming peak oil issue.

Tom Petrie, VP with Petrie/Merrill Lynch/Bank of America: “We have now entered a historic inflection point-call it ‘practical peak oil’-in the global balance of conventional energy supplies.”

Iain Reid, senior oil analyst at Macquarie Bank, sees world supply peaking in 2014 at 89.1 million b/d.

During our September visit to the UK and Ireland, ASPO-USA’s reps interviewed five oil industry experts, including a former chief petroleum engineer for BP, the former CEO of Talisman Energy, and the editor of Petroleum Review magazine. Excerpts from them and others are at the video links above, and at (click on ASPO.TV). If you like what you see, spread the word.

Sadad al Husseini, one of the most respected consultants in the oil industry, and formerly VP of exploration and production with Saudi Aramco, told us: “The push-back [from naysayers] is largely based on lack of information or lack of research. In fact, BP’s annual statistical report clearly shows that from 2003 forward, oil production has hardly increased. So the information is there. The facts are there. Oil prices did not jump four-fold over a three- or four-year period for any reason other  than a shortage of supply. If you don’t talk about these problems, you will never fix the situation. This is not going to get any better. This is going to get worse because you have population growth all over the world, you have a standard of living that is improving all over the world, you have aspirations across the globe for a better quality of life, and people want energy.”

A few organizations-both new and well-established-have issued warnings about future shortfalls in world oil production. Recently the UK’s Energy Research Council study of the situation concluded that “forecasts which delay the peak until after 2030 rest upon several assumptions that are at best optimistic and at worst implausible.” And then there are the whistleblowers who claimed that the International Energy Agency has been manipulating its long-term oil supply forecasts to the upside for years, in response to pressure from the U.S. government. In effect, the insiders, whose claims were verified by others, accuse the IEA of publishing fairy tales, not realistic scenarios.

Of course, the entrenched leader of the optimist club continues to be Cambridge Energy Research Associates. But even CERA, out of step with the smart money, is reeling in their forecasts of future oil production at the rate of 5 million barrels/day per year. As recently as 2007, CERA contended the world would produce 130 mb/day by 2030; now, just 115. CERA’s Daniel Yergin is doing a tap dance back to reality. But he needs to hustle; over the same period, the IEA and even the US’ Energy Information Administration cut their production forecasts from about 120 mb/day to their current 105 mb/day.

Steve Andrews and Randy Udall are two of the five co-founders of ASPO-USA.