Studying Peak Oil

As I've noted previously, Peak Oil has become a mainstream idea in a remarkably short period, no doubt helped along by high oil prices. The subject generates great interest and heated debate both inside and and outside the oil industry, and has spawned many blogs devoted to monitoring its implications and supporting evidence. Yesterday's news included two indicators of this controversy. The Wall Street Journal reminded us that nearly a year ago, the US Secretary of Energy gave the National Petroleum Council the task of comparing the conflicting estimates of oil supply and demand. And at the OPEC meeting in Vienna, Mr. Jum'ah, the head of the Saudi state oil company, dismissed the notion entirely, suggesting that oil resources would be adequate for a hundred years' supply at current production rates. I would be very surprised if the NPC study confirmed that estimate.

The arguments over Peak Oil quickly become esoteric. At the highest level, they revolve around how much oil resides within the earth's crust in locations and geological structures that are conducive to recovery with current or anticipated technology. The recent giant Gulf Coast deepwater discovery indicates how much of a moving target the latter is, since it would have been essentially impossible to find, drill and produce this kind of structure a decade ago. It's not hard to imagine vast future quantities of untapped oil, if you factor in the prospect of further such discoveries, in deeper and deeper water, along with the vast known hydrocarbon resources tied up in oil sands, oil shale, and ultra-heavy oil. But there's more to this story.

The deeper argument arises from the characteristics of the many thousands of oil fields that comprise our current supply. A mere hundred or so of these account for about a third of global production, and many of these giants are getting long in the tooth. Believers in Peak Oil question the industry's ability to bring on enough large new fields, fast enough, to counteract the inevitable decline of today's big producers--mirroring on a global scale the peak and decline experienced in the US in the 1970s. Even though the issues of total endowment and the pipeline of new projects are related, geopolitics and industry structure make the latter a true potential choke point, almost without regard to whether total recoverable oil stands at 1 trillion barrels or 5.7 trillion.

The NPC's website indicates their study should be finalized by mid-2007. Having an authoritative estimate of whether and when our supply of oil will reach a geologically- or geopolitically-constrained peak or plateau will be very helpful. But as long as the national oil companies that hold the majority of the world's reserves are less forthcoming with data than their privately-owned competitors, we will be forced to discount their claims. Greater transparency on the part of OPEC's members would help enormously, and an independent audit of their reserves would allay more fears than any number of studies, as I'm sure Mr. Jum'ah must realize.