The 'Peak Oil' Theory: Will Oil Reserves Run Dry?

Oil's recent slide and the slackening demand that an economic slowdown's expected to bring have stimulated hopes that crude could soon safely stabilize below the $100 range.

But beneath seesawing supply and demand lies the deeper question of just how much oil the planet has in the first place — and how much it will have in the future.

The answer to that question supports — or undermines — the theory that we are in the midst of an ever-tightening supply that will lock prices into a permanent, rising arc. That, in nutshell, is what's meant by the term "peak oil".

It’s an issue that matters, especially to major energy players who are in a race to disprove the theory and trying to bring on-stream more oil fields than are currently being depleted.

John Hofmeister, president of Royal Dutch Shell's US operations, shared his thoughts on the supply issue on CNBC’s Squawk Box on Thursday. He took aim at the peak oil theory as popularized by Matthew Simmons, the author of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy." (See the Hofmeister interview at left.)

“The peak oil theory has really swamped the world — God bless Matt Simmons,” Hofmeister told CNBC.

Simmons is mistaken, said Hofmeister, because he is overly focused on a single country: Saudi Arabia, the world's largest exporter and OPEC swing producer.

Although Saudi Arabia is a dominant player, the Shell executive said focusing solely on Saudi Arabia leaves out the all other places around the globe where Big Oil and national oil companies are busy exploring for untapped oil reservoirs.

Those reservoirs could include the vast — but currently restricted — reserves of the US Outer Continental Shelf, which holds an estimated 100 billion barrels of oil and natural gas. Tapping into such a large supply would slash the $500 billion US sends overseas for each year for oil imports.

As things stands, however, only 15 percent of those reserves are currently exploitable, a good part of that off the coasts of Louisiana, Alabama, Mississippi and Texas.

Simmons is also off the mark, Hofmeister contends, because he excludes unconventional sources of oil such as the oil sands of Canada, where Shell is already active.

The Canadian oil sands — a natural combination of sand, water and oil found largely in Alberta — is believed to contain 1 trillion barrels of oil. Another 1 trillion barrels are also trapped in rocks in Colorado, Utah and Wyoming.

Given all that, we asked Simmons, who is chairman of Simmons & Co. International, a specialized energy investment-banking firm based in Houston, to respond to Hofmeister's comments and explain how his peak oil scenario can be avoided.

CNBC: What's your response to critics like Hofmeister?

Simmons: There is a kind of schizophrenia within the likes of Shell where the chairman basically says, "We think by 2012 global demand will exceed conventional supply" and yet Hofmeister basically says the idea that we are ever going to have peak oil is ridiculous.

CNBC: But he's suggesting you are leaving out unconventional sources of energy in your calculations.

Simmons: They make the distinction [between conventional and unconventional], but they don’t seem to make the connection about the vast difference of flow. They are so hung up on the total estimated volume. Once they start in a project they say, "Well, the reserves last forever so we can book a million barrels of reserves."The energy that is consumed to get oil out of the oil sands of Canada — in massive amounts of potable water and natural gas — is so vast you are really turning gold into lead. What you get out is a very low quality amount of oil that has to be upgraded and diluted with high quality oil to get synthetic crude. What I can’t figure out is why the executives of these oil companies don’t understand that.

CNBC: And what about the reserves on the Outer Continental Shelf?

Simmons: That’s sort of irrelevant because we have such an unbelievable shortage of deep-water rigs. We are totally out of deep-water drilling rigs. There are about 100 that are struggling to get built. Four will ready by the end of next year.

And none of that deep-water stuff they are talking about has been properly tested to know if it is even commercial. It’s in such remote areas that we just don’t have the tool kit to realistically bring it on stream before maybe ten years from now — maybe 6-7 years from now.

CNBC: What about other major finds such as the major off-shore discovery Brazil has made that is estimated could be the third largest oil field in the world?

Simmons: There have only been five wildcat wells drilled there. That’s like me saying I have drilled a well in Kansas, and another in Colorado and in New Mexico and in the panhandle of Texas and if they are all part of one giant oilfield, it is the biggest oil field ever in the Western Hemisphere. That’s an enormous "if."

You can claim that, but the proof of that would only be after you drill about 100 wells and flow test them all. And what we know is that 99 percent of those types of reservoirs never connect.

CNBC: You still think there are production difficulties in Saudi Arabia, but what do you expect will be the impact on production worldwide?

Simmons: Yes, and it’s why we have such a hard time growing production any more, and unfortunately demand doesn’t understand that. We are basically having to run faster and faster to stay in place as too many areas go into steady and steep decline. You look at the North Sea … the last 7-8 years, Norway and the UK have been declining a rate of about 17-18 percent per year. And once you get a field down to its last 10 percent, then it levels out and goes into a long steady state of gentle decline — that is the state of Prudhoe Bay today.

CNBC: So, what is your prognosis for prices?

Simmons: I think prices have to go way higher. The sooner people get used to the fact that we are still living in a fool’s paradise, the better ... you just can not argue that $100 a barrel is expensive when you realize it is 15 cents a cup — do you know anything other than crude oil that sells for 15 cents a cup? I know wine doesn’t, bottled water doesn’t.

Source - CNBC

Picture - Mike Eliason

The Peak Oil Crisis: The Times Drops The First Shoe

Peak Oil started as a story about geology. It was once relatively simple. After 150 years of pumping up oil, the easy-to-find kind was gone and from here on out it was going to be much more difficult to find and eventually prohibitively expensive.

In recent years, however, the peak oil story took on new facets such as rapidly increasing consumption of oil in Asia and producing countries, concentration of most production in the hands of a few governments, unstable world finances, rapidly increasing cost of production and a growing inability or unwillingness to export oil to other countries.

Of all the reasons that gas prices are going up, only the geologic constraint – “supplies are running out” – has an air of finality. There is nothing anybody can do about it.

Other constraints on unlimited oil flows sometimes called “above ground factors” carry with them the subtle implication that there is something that can and just might be done to set things right. A war on top of your oilfield? Stop it! Getting too expensive to produce the necessary oil? Invest more. Government failing to step up production? Change the government! You get the idea. Peaking of world oil production by definition implies that the oil age is on the way out. Almost any other reason for restricted oil flows implies there is a “fix” which will allow us to continue on for awhile without any great disruption.

For over 25 years now, nobody in America has had to think much about oil. It was cheap, hardly taxed at all (by European standards), and available in unlimited quantities. In the last few years, this has started to change with gasoline circa $3 a gallon, oil in the $90s and, thanks to the ethanol craze, food prices going through the roof. Our newspapers are starting to take notice.

The problem has become too big to ignore.

Three weeks ago the Wall Street Journal took a stab at explaining what was happening and came up with the notion that world oil production was only “plateauing,” not peaking. Plateauing carries the implication that life as we know it can go on for awhile. All the oil we import today will continue to be available and, if only the Chinese economy would stop growing so fast, all will be well.

Last Sunday, the New York Times came at the high gas price problem from a different direction – availability of imports. Drawing on the combined wisdom of no less than seven of their reporters strung out around the earth, the Times boldly concluded that “The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad.”

The Times then told its readers some very scary stuff. “Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.” I particularly like the “if it continues” clause which suggests that the Russians, Mexicans, Venezuelans, Iranians and all those incredibly rich Persian Gulf Arabs might just stop buying new cars, building themselves places to live, and buying flat screen TV’s so they can export their oil to their good friends in America instead.

After more scary talk about world oil exports dropping by 2.5 million barrels a day in the next three years and how a drop of this size could lead to major economic problems, the Times switches to a reassuring mode. “The trend, though increasingly important, does not necessarily mean there will be oil shortages. More likely, experts say, it will mean big market shifts, with the number of exporting countries shrinking and unconventional sources like Canadian tar sands becoming more important, especially for the United States. And there is likely to be more pressure to open areas now closed to oil production.”

They even go so far as to suggest that an era of peace and friendship might just break out in the next few years. ”Greater political stability and increased drilling in some important oil states, notably Iraq, Iran and Venezuela, could help offset the rising demand from other oil exporters.”
After reassuring us that all is not necessarily lost, the Times concludes by reinforcing its basic point by saying “Internal oil consumption by the five biggest oil exporters — Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates — grew 5.9 percent in 2006 over 2005, according to government data. Exports declined more than 3 percent. By contrast, oil demand is essentially flat in the United States. CIBC’s demand projections suggest that for many oil countries, including Saudi Arabia, Kuwait and Libya, internal oil demand will double in a decade.”

The Times and the Journal have taken a major step forward by admitting for essentially the first time in front-page stories that the U.S. is going to face a big problem in the next few years. Neither however has connected the dots.

Nowhere does the Times remind us that the U.S. is now importing two-thirds of its oil consumption each day and that a drop of a few percent in daily flow is likely to cause pandemonium at the pumps as it did back in the 1970’s. Neither paper has as yet mustered the editorial courage to discuss the 800-pound gorilla, oil depletion, which every year quietly eats away 4 or 5 percent of our oil supply – the life blood of modern civilization.

Until our major newspapers begin discussing in a frank and open manner what will soon be the first major crisis of the 21st Century, the U.S. Congress is doomed to empty posturing and debating energy red herrings. It is clear that most have no clue as to what is about to befall us.

Written by Tom Whipple
Thursday, 13 December 2007

Beyond the Age of Petroleum

This past May, in an unheralded and almost unnoticed move, the Energy Department signaled a fundamental, near epochal shift in US and indeed world history: we are nearing the end of the Petroleum Age and have entered the Age of Insufficiency. The department stopped talking about "oil" in its projections of future petroleum availability and began speaking of "liquids." The global output of "liquids," the department indicated, would rise from 84 million barrels of oil equivalent (mboe) per day in 2005 to a projected 117.7 mboe in 2030--barely enough to satisfy anticipated world demand of 117.6 mboe. Aside from suggesting the degree to which oil companies have ceased being mere suppliers of petroleum and are now purveyors of a wide variety of liquid products--including synthetic fuels derived from natural gas, corn, coal and other substances--this change hints at something more fundamental: we have entered a new era of intensified energy competition and growing reliance on the use of force to protect overseas sources of petroleum.

To appreciate the nature of the change, it is useful to probe a bit deeper into the Energy Department's curious terminology. "Liquids," the department explains in its International Energy Outlook for 2007, encompasses "conventional" petroleum as well as "unconventional" liquids--notably tar sands (bitumen), oil shale, biofuels, coal-to-liquids and gas-to-liquids. Once a relatively insignificant component of the energy business, these fuels have come to assume much greater importance as the output of conventional petroleum has faltered. Indeed, the Energy Department projects that unconventional liquids production will jump from a mere 2.4 mboe per day in 2005 to 10.5 in 2030, a fourfold increase. But the real story is not the impressive growth in unconventional fuels but the stagnation in conventional oil output. Looked at from this perspective, it is hard to escape the conclusion that the switch from "oil" to "liquids" in the department's terminology is a not so subtle attempt to disguise the fact that worldwide oil production is at or near its peak capacity and that we can soon expect a downturn in the global availability of conventional petroleum.

Petroleum is, of course, a finite substance, and geologists have long warned of its ultimate disappearance. The extraction of oil, like that of other nonrenewable resources, will follow a parabolic curve over time. Production rises quickly at first and then gradually slows until approximately half the original supply has been exhausted; at that point, a peak in sustainable output is attained and production begins an irreversible decline until it becomes too expensive to lift what little remains. Most oil geologists believe we have already reached the midway point in the depletion of the world's original petroleum inheritance and so are nearing a peak in global output; the only real debate is over how close we have come to that point, with some experts claiming we are at the peak now and others saying it is still a few years or maybe a decade away. Until very recently, Energy Department analysts were firmly in the camp of those wild-eyed optimists who claimed that peak oil was so far in the future that we didn't really need to give it much thought. Putting aside the science of the matter, the promulgation of such a rose-colored view obviated any need to advocate improvements in automobile fuel efficiency or to accelerate progress on the development of alternative fuels. Given White House priorities, it is hardly surprising that this view prevailed in Washington.

In just the past six months, however, the signs of an imminent peak in conventional oil production have become impossible even for conservative industry analysts to ignore. These have come from the take-no-prisoners world of oil pricing and deal-making, on the one hand, and the analysis of international energy experts, on the other.

Most dramatic, perhaps, has been the spectacular rise in oil prices. The price of light, sweet crude crossed the longstanding psychological barrier of $80 per barrel on the New York Mercantile Exchange for the first time in September, and has since risen to as high as $90.

Many reasons have been cited for the rise in crude prices, including unrest in Nigeria's oil-producing Delta region, pipeline sabotage in Mexico, increased hurricane activity in the Gulf of Mexico and fears of Turkish attacks on Kurdish guerrilla sanctuaries in Iraq. But the underlying reality is that most oil-producing countries are pumping at maximum capacity and finding it increasingly difficult to boost production in the face of rising international demand.

Even a decision by the Organization of the Petroleum Exporting Countries (OPEC) to boost production by 500,000 barrels per day failed to halt the upward momentum in prices. Concerned that an excessive rise in oil costs would trigger a worldwide recession and lower demand for their products, the OPEC countries agreed to increase their combined output at a meeting in Vienna on September 11. "We think that the market is a little bit high," explained Kuwait's acting oil minister, Mohammad al-Olaim. But the move did little to slow the rise in prices. Clearly, OPEC would have to undertake a much larger production increase to alter the market environment, and it is not at all clear that its members possess the capacity to do that--now or in the future.

A warning sign of another sort was provided by Kazakhstan's August decision to suspend development of the giant Kashagan oil region in its sector of the Caspian Sea, first initiated by a consortium of Western firms in the late '90s. Kashagan was said to be the most promising oil project since the discovery of oil in Alaska's Prudhoe Bay in the late '60s. But the enterprise has encountered enormous technical problems and has yet to produce a barrel of oil. Frustrated by a failure to see any economic benefits from the project, the Kazakh government has cited environmental risks and cost overruns to justify suspending operations and demanding a greater say in the project.

Like the dramatic rise in oil prices, the Kashagan episode is an indication of the oil industry's growing difficulties in its efforts to boost production in the face of rising demand. "All the oil companies are struggling to grow production," Peter Hitchens of Teather & Greenwood brokerage told the Wall Street Journal in July. "It's becoming more and more difficult to bring projects in on time and on budget."

That this industry debilitation is not a temporary problem but symptomatic of a long-term trend was confirmed in two important studies published this past summer by conservative industry organizations.

The first of these was released July 9 by the International Energy Agency (IEA), an affiliate of the Organization for Economic Cooperation and Development, the club of major industrial powers. Titled Medium-Term Oil Market Report, it is a blunt assessment of the global supply-and-demand equation over the 2007-12 period. The news is not good.

Predicting that world economic activity will grow by an average of 4.5 percent per year during this period--much of it driven by unbridled growth in China, India and the Middle East--the report concludes that global oil demand will rise by 2.2 percent per year, pushing world oil consumption from approximately 86 million barrels per day in 2007 to 96 million in 2012. With luck and massive new investment, the oil industry will be able to increase output sufficiently to satisfy the higher level of demand anticipated for 2012--barely. Beyond that, however, there appears little likelihood that the industry will be able to sustain any increase in demand. "Oil look[s] extremely tight in five years' time," the agency declared.

Underlying the report's general conclusion are a number of specific concerns. Most notably, it points to a worrisome decline in the yield of older fields in non-OPEC countries and a corresponding need for increased output from the OPEC countries, most of which are located in conflict-prone areas of the Middle East and Africa. The numbers involved are staggering. At first blush, it would seem that the need for an extra 10 million barrels per day between now and 2012 would translate into an added 2 million barrels per day in each of the next five years--a conceivably attainable goal. But that doesn't take into account the decline of older fields.

According to the report, the world actually needs an extra 5 million: 3 million to make up for the decline in older fields plus the 2 million in added requirements. This is a daunting and possibly insurmountable challenge, especially when one considers that almost all of the additional petroleum will have to come from Iran, Iraq, Kuwait, Saudi Arabia, Algeria, Angola, Libya, Nigeria, Sudan, Kazakhstan and Venezuela--countries that do not inspire the sort of investor confidence that will be needed to pour hundreds of billions of dollars into new drilling rigs, pipelines and other essential infrastructure.

Similar causes for anxiety can be found in the second major study released last summer, Facing the Hard Truths About Energy, prepared by the National Petroleum Council, a major industry organization. Because it supposedly provided a "balanced" view of the nation's energy dilemma, the NPC report was widely praised on Capitol Hill and in the media; adding to its luster was the identity of its chief author, former ExxonMobil CEO Lee Raymond.

Like the IEA report, the NPC study starts with the claim that, with the right mix of policies and higher investment, the industry is capable of satisfying US and international oil and natural gas demand. "Fortunately, the world is not running out of energy resources," the report bravely asserts. But obstacles to the development and delivery of these resources abound, so prudent policies and practices are urgently required. Although "there is no single, easy solution to the multiple challenges we face," the authors conclude, they are "confident that the prompt adoption of these strategies" will allow the United States to satisfy its long-term energy needs.

Read further into the report, however, and serious doubts emerge. Here again, worries arise from the growing difficulties of extracting oil and gas from less-favorable locations and the geopolitical risks associated with increased reliance on unfriendly and unstable suppliers. According to the NPC (using data acquired from the IEA), an estimated $20 trillion in new infrastructure will be needed over the next twenty-five years to ensure that sufficient energy is available to satisfy anticipated worldwide demand.

The report then states the obvious: "A stable and attractive investment climate will be necessary to attract adequate capital for evolution and expansion of the energy infrastructure." This is where any astute observer should begin to get truly alarmed, for, as the study notes, no such climate can be expected. As the center of gravity of world oil production shifts decisively to OPEC suppliers and state-centric energy producers like Russia, geopolitical rather than market factors will come to dominate the marketplace.

"These shifts pose profound implications for U.S. interests, strategies, and policy-making," the NPC report states. "Many of the expected changes could heighten risks to U.S. energy security in a world where U.S. influence is likely to decline as economic power shifts to other nations. In years to come, security threats to the world's main sources of oil and natural gas may worsen."
The implications are obvious: major investors are not likely to cough up the trillions of dollars needed to substantially boost production in the years ahead, suggesting that the global output of conventional petroleum will not reach the elevated levels predicted by the Energy Department but will soon begin an irreversible decline.

This conclusion leads to two obvious strategic impulses: first, the government will seek to ease the qualms of major energy investors by promising to protect their overseas investments through the deployment of American military forces; and second, the industry will seek to hedge its bets by shifting an ever-increasing share of its investment funds into the development of nonpetroleum liquids.

The New 'Washington Consensus'

The need for a vigorous US military role in protecting energy assets abroad has been a major theme in American foreign policy since 1945, when President Roosevelt met with King Abdul Aziz of Saudi Arabia and promised to protect the kingdom in return for privileged access to Saudi oil.

In the most famous expression of this linkage, President Carter affirmed in January 1980 that the unimpeded flow of Persian Gulf oil is among this country's vital interests and that to protect this interest, the United States will employ "any means necessary, including military force." This principle was later cited by President Reagan as the rationale for "reflagging" Kuwaiti oil tankers with the American ensign during the Iran-Iraq War of 1980-88 and protecting them with US warships--a stance that led to sporadic clashes with Iran. The same principle was subsequently invoked by George H.W. Bush as a justification for the Gulf War of 1991.

In considering these past events, it is important to recognize that the use of military force to protect the flow of imported petroleum has generally enjoyed broad bipartisan support in Washington. Initially, this bipartisan outlook was largely focused on the Persian Gulf area, but since 1990, it has been extended to other areas as well. President Clinton eagerly pursued close military ties with the Caspian Sea oil states of Azerbaijan and Kazakhstan after the breakup of the USSR in 1991, while George W. Bush has avidly sought an increased US military presence in Africa's oil-producing regions, going so far as to favor the establishment of a US Africa Command (Africom) in February.

One might imagine that the current debacle in Iraq would shake this consensus, but there is no evidence that this is so. In fact, the opposite appears to be the case: possibly fearful that the chaos in Iraq will spread to other countries in the Gulf region, senior figures in both parties are calling for a reinvigorated US military role in the protection of foreign energy deliveries.

Perhaps the most explicit expression of this elite consensus is an independent task force report, National Security Consequences of U.S. Oil Dependency, backed by many prominent Democrats and Republicans. It was released by the bipartisan Council on Foreign Relations (CFR), co-chaired by John Deutch, deputy secretary of defense in the Clinton Administration, and James Schlesinger, defense secretary in the Nixon and Ford administrations, in October 2006. The report warns of mounting perils to the safe flow of foreign oil. Concluding that the United States alone has the capacity to protect the global oil trade against the threat of violent obstruction, it argues the need for a strong US military presence in key producing areas and in the sea lanes that carry foreign oil to American shores.

An awareness of this new "Washington consensus" on the need to protect overseas oil supplies with American troops helps explain many recent developments in Washington. Most significant, it illuminates the strategic stance adopted by President Bush in justifying his determination to retain a potent US force in Iraq--and why the Democrats have found it so difficult to contest that stance.

Consider Bush's September 13 prime-time speech on Iraq. "If we were to be driven out of Iraq," he prophesied, "extremists of all strains would be emboldened.... Iran would benefit from the chaos and would be encouraged in its efforts to gain nuclear weapons and dominate the region. Extremists could control a key part of the global energy supply." And then came the kicker: "Whatever political party you belong to, whatever your position on Iraq, we should be able to agree that America has a vital interest in preventing chaos and providing hope in the Middle East." In other words, Iraq is no longer about democracy or WMDs or terrorism but about maintaining regional stability to ensure the safe flow of petroleum and keep the American economy on an even keel; it was almost as if he was speaking to the bipartisan crowd that backed the CFR report cited above.

It is very clear that the Democrats, or at least mainstream Democrats, are finding it exceedingly difficult to contest this argument head-on. In March, for example, Senator Hillary Clinton told the New York Times that Iraq is "right in the heart of the oil region" and so "it is directly in opposition to our interests" for it to become a failed state or a pawn of Iran. This means, she continued, that it will be necessary to keep some US troops in Iraq indefinitely, to provide logistical and training support to the Iraqi military. Senator Barack Obama has also spoken of the need to maintain a robust US military presence in Iraq and the surrounding area. Thus, while calling for the withdrawal of most US combat brigades from Iraq proper, he has championed an "over-the-horizon force that could prevent chaos in the wider region."

Given this perspective, it is very hard for mainstream Democrats to challenge Bush when he says that an "enduring" US military presence is needed in Iraq or to change the Administration's current policy, barring a major military setback or some other unforeseen event. By the same token, it will be hard for the Democrats to avert a US attack on Iran if this can be portrayed as a necessary move to prevent Tehran from threatening the long-term safety of Persian Gulf oil supplies.

Nor can we anticipate a dramatic change in US policy in the Gulf region from the next administration, whether Democratic or Republican. If anything, we should expect an increase in the use of military force to protect the overseas flow of oil, as the threat level rises along with the need for new investment to avert even further reductions in global supplies.

The Rush to Alternative Liquids

Although determined to keep expanding the supply of conventional petroleum for as long as possible, government and industry officials are aware that at some point these efforts will prove increasingly ineffective. They also know that public pressure to reduce carbon dioxide emissions--thus slowing the accumulation of climate-changing greenhouse gases--and to avoid exposure to conflict in the Middle East is sure to increase in the years ahead. Accordingly, they are placing greater emphasis on the development of oil alternatives that can be procured at home or in neighboring Canada.

The new emphasis was first given national attention in Bush's latest State of the Union address. Stressing energy independence and the need to modernize fuel economy standards, he announced an ambitious plan to increase domestic production of ethanol and other biofuels. The Administration appears to favor several types of petroleum alternatives: ethanol derived from corn stover, switch grass and other nonfood crops (cellulosic ethanol); diesel derived largely from soybeans (biodiesel); and liquids derived from coal (coal-to-liquids), natural gas (gas-to-liquids) and oil shale. All of these methods are being tested in university laboratories and small-scale facilities, and will be applied in larger, commercial-sized ventures in coming years with support from various government agencies.

Michael T. Klare

The Nation

Global Oil Output Has Already Peaked, Pickens Says

Oct. 19 (Bloomberg) -- World oil output has already peaked, and prices that have surged to record highs above $90 a barrel are a sign of things to come, said investor Boone Pickens, chairman of Dallas-based BP Capital LLC.

Global production has peaked at 85 million barrels a day, Pickens, 79, said in an interview today at a Houston conference sponsored by the Association for the Study of Peak Oil & Gas, a non-profit think tank. Oil will rise to $100 a barrel before falling to $80 again, he said. Earlier this week, he said crude would reach $100 by year's end.

``As this unfolds, you're going to have to find alternatives that are going to do the job that oil is doing,'' Pickens said.

``Everyone is going to have to come to grips with this in the next two or three years. People are going to have to figure it out.''

Peak oil is the theory that world production has reached or is about to reach its zenith, after which it will begin an unstoppable decline. Critics say it's impossible to know when petroleum output has peaked, given uncertainties estimating global reserves. Previous efforts to peg a date for peak output have been wrong, they say.

Investors such as Pickens and analysts like Matthew Simmons of Houston investment bank Simmons & Co. International support the peak oil theory. Executives from companies such as Exxon Mobil Corp. have downplayed the possibility.

``They talked like $50 was going to be difficult, and $60 and $70. We went through those like a knife through hot butter,'' Pickens said.

Last month, Pickens predicted that oil would reach $100 a barrel after falling to $78. Futures in New York dropped as low as $78.35 on Oct. 8, and touched a record high of $90.07 today.

Dividends, Buybacks

Pickens said the major oil companies should be doubling dividends and cutting buybacks.

``I think the repurchase of stock in the market is telling something,'' he said. ``It's telling the market that we can't grow.''

The companies will be manufacturing operations eventually, he said. ``The reserves will be gone and they're going to be refiners and processors,'' Pickens said.

He also said natural-gas prices may drop to $6.50 per million British thermal units in the spring of 2008 and that with a warm winter, prices could be low next year. They could go back up in 2009, he said.

The Undeclared Oil War

While some debate whether the war in Iraq was or was not "about oil," another war, this one involving little but oil, has broken out between two of the world's most powerful nations.

For months China and Japan have been locked in a diplomatic battle over access to the big oil fields in Siberia. Japan, which depends entirely on imported oil, is desperately lobbying Moscow for a 2,300-mile pipeline from Siberia to coastal Japan. But fast-growing China, now the world's second-largest oil user, after the United States, sees Russian oil as vital for its own "energy security" and is pushing for a 1,400-mile pipeline south to Daqing.

The petro-rivalry has become so intense that Japan has offered to finance the $5 billion pipeline, invest $7 billion in development of Siberian oil fields and throw in an additional $2 billion for Russian "social projects" -- this despite the certainty that if Japan does win Russia's oil, relations between Tokyo and Beijing may sink to their lowest, potentially most dangerous, levels since World War II.

Asia's undeclared oil war is but the latest reminder that in a global economy dependent largely on a single fuel -- oil -- "energy security" means far more than hardening refineries and pipelines against terrorist attack. At its most basic level, energy security is the ability to keep the global machine humming -- that is, to produce enough fuels and electricity at affordable prices that every nation can keep its economy running, its people fed and its borders defended.

A failure of energy security means that the momentum of industrialization and modernity grinds to a halt. And by that measure, we are failing.

In the United States and Europe, new demand for electricity is outpacing the new supply of power and natural gas and raising the specter of more rolling blackouts. In the "emerging" economies, such as Brazil, India and especially China, energy demand is rising so fast it may double by 2020. And this only hints at the energy crisis facing the developing world, where nearly 2 billion people -- a third of the world's population -- have almost no access to electricity or liquid fuels and are thus condemned to a medieval existence that breeds despair, resentment and, ultimately, conflict.

In other words, we are on the cusp of a new kind of war -- between those who have enough energy and those who do not but are increasingly willing to go out and get it. While nations have always competed for oil, it seems more and more likely that the race for a piece of the last big reserves of oil and natural gas will be the dominant geopolitical theme of the 21st century.

Already we can see the outlines. China and Japan are scrapping over Siberia. In the Caspian Sea region, European, Russian, Chinese and American governments and oil companies are battling for a stake in the big oil fields of Kazakhstan and Azerbaijan. In Africa, the United States is building a network of military bases and diplomatic missions whose main goal is to protect American access to oilfields in volatile places such as Nigeria, Cameroon, Chad and tiny Sao Tome -- and, as important, to deny that access to China and other thirsty superpowers.

The diplomatic tussles only hint at what we'll see in the Middle East, where most of the world's remaining oil lies. For all the talk of big new oil discoveries in Russia and Africa -- and of how this gush of crude will "free" America and other big importers from the machinations of OPEC -- the geological facts speak otherwise. Even with the new Russian and African oil, worldwide oil production outside the Middle East is barely keeping pace with demand.

In the run-up to the Iraq war, Russia and France clashed noisily with the United States over whose companies would have access to the oil in post-Saddam Hussein Iraq. Less well known is the way China has sought to build up its own oil alliances in the Middle East -- often over Washington's objections. In 2000 Chinese oil officials visited Iran, a country U.S. companies are forbidden to deal with; China also has a major interest in Iraqi oil.

But China's most controversial oil overture has been made to a country America once regarded as its most trusted oil ally: Saudi Arabia. In recent years, Beijing has been lobbying Riyadh for access to Saudi reserves, the largest in the world. In return, the Chinese have offered the Saudis a foothold in what will be the world's biggest energy market -- and, as a bonus, have thrown in offers of sophisticated Chinese weaponry, including ballistic missiles and other hardware, that the United States and Europe have refused to sell to the Saudis.

Granted, the United States, with its vast economic and military power, would probably win any direct "hot" war for oil. The far more worrisome scenario is that an escalating rivalry among other big consumers will spark new conflicts -- conflicts that might require U.S. intervention and could easily destabilize the world economy upon which American power ultimately rests.

As demand for oil becomes sharper, as global oil production continues to lag (and as producers such as Saudi Arabia and Nigeria grow more unstable) the struggle to maintain access to adequate energy supplies, always a critical mission for any nation, will become even more challenging and uncertain and take up even more resources and political attention.

This escalation will not only drive up the risk of conflict but will make it harder for governments to focus on long-term energy challenges, such as avoiding climate change, developing alternative fuels and alleviating Third World energy poverty -- challenges that are themselves critical to long-term energy security but which, ironically, will be seen as distracting from the current campaign to keep the oil flowing.

This, ultimately, is the real energy-security dilemma. The more obvious it becomes that an oil-dominated energy economy is inherently insecure, the harder it becomes to move on to something beyond oil.

-------------------------------

By Paul RobertsWashington Post

Private industry conference finds much less oil

A secretive gathering some of the world’s biggest oil companies has concluded the industry will discover far less oil than officially forecast, meaning global oil production may peak much sooner than many expect.

The Hedberg Research Conference on Understanding World Oil Resources was held by the American Association of Petroleum Geologists in Colorado Springs last November to try to reconcile widely divergent estimates of likely future reserves additions. In an interview with Lastoilshock.com, oil executive Ray Leonard said the majority view was that future oil discovery would amount to some 250 billion barrels, rather than the 650 billion barrels suggested by the United States Geological Survey. The Colorado meeting was attended by technical experts from all the supermajors along with some of the biggest state-owned oil companies such as Saudi Aramco. According to Mr Leonard, a vice president of the recently-formed Kuwait Energy Company, who presented a paper on Russian reserves as the former head of exploration for Yukos, the experts challenged the USGS’s regional assessments on the basis of their companies’ more detailed proprietary data. Mr Leonard says the majority opinion was that reserves growth from current fields might add around another 500 billion barrels, against the USGS estimate of 612 billion, and that non-conventional oil production would reach only 4-5 million barrels per day by 2015, also much lower than the most optimistic predictions.

Journalists were barred from the conference to allow open discussion of confidential information, although the Oil & Gas Journal later reported that the meeting had concluded oil production would peak between 2020 and 2040 at 90-100 million barrels per day. But Mr Leonard said that based on the range of numbers accepted by the majority of delegates at the conference, he expects output to plateau in five years’ time. “If there’s a world recession it could be a little longer, if United States invades another oil producing country it may happen a lot sooner. But it’s going to happen in around five years so we need to make some preparations”.

Politics 'threatening energy security'

Politically driven state energy companies are hindering access to global oil reserves, threatening worldwide energy security, senior oil executives said today.

High oil prices and perceptions of soaring industry profits have prompted many producing countries to give national oil companies more power to extract richer fiscal terms and greater control over resources, pushing out international players, Rex Tillerson, chief executive of US supermajor ExxonMobil, said.

Such policies will lead to tighter oil supplies as ExxonMobil and other majors stop deploying their technology, know-how and capital in some of those countries, he said.

"If there's no room to share it then there is no role for us - it's a simple as that," he told business and political leaders at a meeting in Calgary, Reuters reported.

"I think that's something that national oil companies have to get their minds around and they've got to help their governments get their minds around."

Exxon left its Venezuelan operations behind this year after it refused to accept more nationalistic terms set by President Hugo Chavez, which gave state-controlled PDVSA bigger stakes.

"The big value in resources development is not in the upfront bonus money that you're paid, it's in the incremental recovery over the life of that resource that's of huge value to the host country," he said.

State oil companies now control 75% of the world's proven oil reserves and international companies like ExxonMobil, Anglo-Dutch supermajor Shell and French giant Total account for about 10%, he said.

Total chairman Thierry Desmarest agreed that many countries in regions like the Middle East, former Soviet Union, Africa and South America have been putting more political obstacles in place, restricting access to new reserves.

Meanwhile, production in most of the rich countries of the West is expected to keep declining.

Still, Total agreed to Venezuela's new terms, allowing it to maintain some heavy oil operations in the Opec country.

"We have made our choice because we think that Venezuela's oil potential is substantial. The country needs the world-class technology that my company and other companies provide," Desmarest said. "And we think that in the long term the convergence of interests should be recognised."

The two other big issues for the industry as it struggles to meet rising demand in developed and developing countries are improving technology to get at hard-to-reach reserves and meeting stringent environmental regulations, oil bosses said.

"For every barrel of oil or cubic metre of gas that you consume today, to replace that barrel it costs more, so our industry gets a lot more more capital intensive per unit all the time," said Jeroen van der Veer, chief executive of Shell.

All three of the companies, along with numerous others, have invested billions of dollars to develop Canada's massive oil sands, access to which has not been hindered by politics.

Upstream Online

United States, China Clash over Peak Oil May Endanger World Peace

By Ann Weaver Hart

Peak Oil may have put the United States on a collision course with China as the two nations compete for African oil reserves. "Peak Oil" refers to the fact that worldwide, per capita petroleum production peaked in 1979. Owing to population growth, even though more actual barrels of oil per day are extracted, the amount of oil pumped per person continues to drop.

American companies helped create the situation, but seem unconcerned over the prospect of facing off with China over petroleum.

In the late 1990s, one of GM's annual reports focused on that company's efforts to open the Chinese market to American-made cars. The report stated that GM intended to bring personal transportation to 1 billion Chinese. Investors and oil companies loved the idea of practically limitless profits, and GM continues its commitment to personal mobility in heavily populated Asian nations today.

In the United States, auto makers, encouraged by weakened environmental standards, produced and marketed gas-guzzlers like turbo-charged pickups, SUVs, and Humvees, which Americans bought in droves.

After the bombing of the World Trade Centers, Americans were barraged with advertisements for vehicles with low- and zero-interest loans. These promotions were almost exclusively for high-consumption vehicles. There were efficient vehicles being produced.

Toyota introduced both the Echo, a four-cylinder wonder that got 40 mph and the Prius, a gas-electric hybrid during this time, but the vehicles went nearly un-promoted. Soon after WTC, the U.S. military deployed to countries where petroleum production was the major business, coincidentally destabilizing governments and the oil markets, and causing gasoline prices to first double, and at times, triple.

Transportation is not the only petroleum-dependent industry in the United States. Prices of agricultural products are beginning to rise with production costs, and as the demand for agriculturally produced fuels places upward pressures on the price of corn.

Meanwhile, auto makers are creating a Chinese version of the American dream, with a car in every driveway, and the Chinese are faced with a rapidly growing demand for gasoline that has already outstripped domestic production.

At present, the U.S. military is present in Afghanistan and Iraq, and the current administration is eyeing Iran. Meanwhile, Chinese companies are busy in Africa attempting to stake their claims to that region's black gold. Not to be outdone, the United States Department of Defense is preparing AFRICOM for operations beginning in October.

In a Defense Department report, officials downplayed the military aspect of the operation, stressing its economic and diplomatic aims, but the organization is responsible for security, a primarily military objective, and is headed by General William E. "Kip" Ward.

Meanwhile, American and Chinese citizens burn as much gasoline as they can comfortably afford. Hybrid cars are expensive and still consume gasoline. Petroleum resources are finite.

The Chinese want oil, and lots of it. What remains to be seen is what they or the United States are willing to do to get it.

###

Read more about Peak Oil

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Peak Oil Forecasters Win Converts on Wall Street to $200 Crude

On a sweltering Tuesday in mid-July, in the fields outside Pisa, Italy, Willem Kadijk scribbles notes as a ragtag troupe of doomsayers predict the end of the Oil Age.

With his shaved head, jeans and sandals, Kadijk, 48, blends into a crowd gathered under a white tent to hear of the coming calamity. The death of cheap, abundant crude, the forecasters warn, might unleash war and plunge the world into a second Great Depression.

That's not the prophecy of some apocalyptic cult. Kadijk, a hedge fund adviser, had flown from Amsterdam to attend a conference on a geologic theory known as peak oil.

Proponents of this controversial idea say global oil production is now at or near its zenith. Once the flow crests and starts to decline -- and some geologists say it already has -- oil will no longer be able to slake the world's growing thirst for energy. The result will be the oil shock to end all oil shocks. The price of a barrel of crude will spiral to $200 -- and keep rising. To the peaksters, today's energy crunch is nothing next to the pain that will follow.

``Peak oil is a reality,'' says Kadijk, a senior equity salesman at Kepler Equities, an Amsterdam-based brokerage. He plans to start a fund to capitalize on what he sees as a looming crisis for the world's fossil fuel-based economy and the ultimate bull market in oil.

As energy prices soar and violence convulses the Middle East, the peak-oil movement -- an unlikely alliance of geologists, physicists, oil industry consultants and environmental activists -- is winning converts. Peak-oil ideas are bubbling up from scientific journals and offbeat Web sites, much the way warnings of global warming did a decade ago. For the first time, the peaksters have begun to grab the attention of Washington and Wall Street.

Congressional Caucus

U.S. Energy Secretary Samuel Bodman, former boss of Boston- based Cabot Corp., an oil and chemicals company, has asked the National Petroleum Council, which advises him, to investigate whether oil supplies can keep pace with demand. The U.S. Government Accountability Office, the nonpartisan congressional watchdog, is due to release a study on peak oil this November. Rep. Roscoe Bartlett, a Maryland Republican, has formed the Congressional Peak Oil Caucus to sound the alarm.

``The world has never faced a problem like this,'' Bartlett says.

Everyone agrees we'll run out of crude eventually. Oil, after all, is a finite resource: The Earth holds only so much of it. The controversial issue is when a global peak will occur -- and what will happen then.

Colin Campbell, a British geologist who popularized the peak- oil theory in his book ``The Coming Oil Crisis'' (Multi-Science Publishing Co. and Petroconsultants SA, 1997, 210 pages) says world production of conventional oil, the kind that comes from gushing wells, is reaching its apex.

End of Oil Age

Society isn't prepared for the consequences, Campbell, 75, says. It's too late to develop alternative sources of power, such as solar cells, nuclear reactors and windmills, to fill the oil gap before energy prices soar, says Campbell, who has a doctorate in geology from the University of Oxford and more than 40 years of experience in the oil industry.

``We have come to the end of the first half of the Oil Age,'' Campbell says.

Nonsense, says Russ Roberts, a spokesman for Exxon Mobil Corp., the world's largest oil company. Exxon Mobil, which has reaped record profits as the price of oil has surged, has taken out ads dismissing peak oil in U.S. newspapers such as the New York Times.

The Irving, Texas-based oil giant says the peaksters are being alarmist. In all, the world probably has 4 trillion barrels of oil left, four times the amount we have used so far, the ad says.

Time to Think

``The world is nowhere near running out of oil,'' Roberts says. Exxon Mobil geologists believe global oil production will keep rising through 2030, he says.

Cambridge Energy Research Associates, whose chairman, Daniel Yergin, is a leading peak-oil critic, says production will reach an ``undulating plateau'' sometime in the future.

``Our outlook goes to 2020, and we see no evidence of a peak,'' CERA geologist Peter Jackson says. ``Eventually, we will start to see a decline. There is still time to think about alternatives.''

Predictions of an imminent oil famine are as old as the industry itself. When production at the first U.S. wells, located in western Pennsylvania, began to decline in the late 19th century, some people predicted the country would soon run out of oil. Then crude was discovered in east Texas, whose oil fields yielded so much black gold that the Texas Railroad Commission capped production to support prices.

Peak Moment

In the past, Campbell or his disciples have forecast the oil peak down to the year or even the day only to push back the fateful moment. In 1997, Campbell said it would occur in 2001. Now, he says total production, which includes oil from deep-water wells and fuel derived from natural gases, will reach its height sometime after 2010.

Kenneth Deffeyes, a geologist and professor emeritus at Princeton University, first pinpointed Nov. 24, 2005, as the peak- oil date and then revised it to Dec. 16, 2005.

Campbell says the exact day or year isn't important. What matters is that peak oil is coming, and soon. Almost a century and a half after the first U.S. wells were drilled in Titusville, Pennsylvania, production has begun to decline in more than a dozen countries, including the U.S., according to the BP Statistical Review of World Energy. Production at the giant Cantarell oil field in Mexico is likely to decline 8 percent this year, according to Mexican state oil monopoly Petroleos Mexicanos.

U.S. Addiction

At a time when U.S. President George W. Bush has urged the country to break its addiction to foreign oil, the fact is, the U.S. is becoming ever more dependent on overseas crude. U.S. oil production peaked 36 years ago, in 1970, at 11.3 million barrels a day. Since then, output has fallen 39 percent, to 6.8 million barrels a day, or 8 percent of the world total, in 2005, according to BP.

Investors have started to listen to the peaksters. Billionaire Boone Pickens says he's a peak believer. So does Peter Thiel, who co-founded PayPal Inc. and now runs Clarium Capital Management LLC, a $2.1 billion hedge fund firm. Pickens, Thiel and other investors are positioning themselves to profit from what they say will be the biggest oil squeeze of all time.

Even some oil companies and industry veterans sound nervous. Chevron Corp. has run a series of full-page ads in U.S. newspapers that highlight surging oil consumption and declare, ``The era of easy oil is over.''

Chicken Littles

Thierry Desmarest, chief executive officer of Paris-based Total SA, told the World Gas Conference in Amsterdam in June that global oil production would peak in 2020. Matthew Simmons, whose Houston-based investment bank, Simmons & Co., trades oil and gas stocks, says Saudi Arabia's production may decline soon.

Alex Cranberg, chairman of Denver-based independent oil company Aspect Energy LLC, calls the peaksters Chicken Littles -- misguided souls who think the sky is falling.

In fact, Cranberg hired two people to dress in chicken costumes and hand out fliers dismissing peak oil at the conference Kadijk attended in July.

Like many oil-industry vets, Cranberg, 51, says market forces and technological advances will ultimately cure our energy ills. As oil prices rise, companies will be more willing to hunt for crude and extract it. They'll invest in expensive deep-water wells and new technologies to wring more oil from existing fields. Consumers will start conserving energy. Even now, stock market investors and Silicon Valley venture capitalists are pouring billions of dollars into companies developing ethanol, solar power and other alternative sources of energy.

$3-a-Gallon Gas

More and more, however, the peaksters are drowning out everyone else, Cranberg says. ``You can't turn around without seeing or hearing these ideas,'' he says. ``I think they are gaining.''
You don't have to be a geologist to understand why. The price of crude has tripled since 2000. In the U.S., $3-a-gallon gasoline has sapped consumers' confidence. Nearly half of Americans believe the economy is doing poorly, according to a July 28-Aug. 1 Bloomberg/Los Angeles Times poll. Fifty-nine percent of Americans expressed a negative view of Bush's handling of the economy.

``If oil was still at $20, no one would be talking about peak oil,'' says Manouchehr Takin, senior petroleum upstream analyst at the Centre for Global Energy Studies, a London-based consulting firm.

High oil prices are only part of the story, however. The world is straining to feed its energy habit. Today, we consume 85 million barrels of oil a day, according to the U.S. Energy Information Administration (EIA). By 2030, the world will devour 118 million barrels a day, as China and India emerge as economic superpowers.

Big Question Mark

No one knows for sure how much oil the world has. That's a big question mark because the peaksters say production will max out once half of the oil has been pumped. So far, we've extracted about 1 trillion barrels in all. In 2000, the U.S. Geological Survey estimated global resources at 3 trillion barrels, enough to push peak production out to 2037, according to the EIA. Campbell puts the total lower, at 2.5 trillion barrels.

Oil is certainly getting harder -- and more expensive -- to find and extract. Oil discoveries plummeted to 5 billion barrels in 2005 from 90 billion barrels in 1964, according to Campbell.
``Discovery is in long-term decline, and spending more money won't increase it,'' says Chris Skrebowski, editor of the London- based Petroleum Review, an industry journal.

OPEC's Stash

Oil companies have to find enough crude to offset dwindling production at existing fields, which can decline by more than 8 percent a year, and to keep pace with rising demand. Most of that increase will have to come from members of the Organization of Petroleum Exporting Countries, which are often cauldrons of discontent, war and terror.

The cartel's members -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela -- together sit atop 75 percent of the world's reserves and account for about 42 percent of total production, according to BP.

OPEC countries are hardly paragons of economic and political stability. Most of the terrorists who attacked the U.S. on Sept. 11, 2001, came from Saudi Arabia. The war in Iraq has hurt that country's ability to pump oil. Bush says Iran is trying to develop nuclear weapons. In Venezuela, President Hugo Chavez has said he wants to diversify oil exports away from the U.S.

In its 2005 Energy Outlook, Exxon Mobil says the combined production of non-OPEC countries will peak sometime from 2010 to 2020. OPEC will be able to fill the gap, the report says. OPEC produced about 30 million barrels a day in 2005; by 2030, OPEC would have to churn out 47 million barrels a day -- almost 57 percent more than it did last year -- to satisfy the world's needs, the report says.

Meeting the Call

``We believe the resource base will support this increase, assuming that investments in development are made in a timely fashion,'' the report says.

OPEC countries will invest a combined $100 billion in the five years through 2010 so they can increase output, OPEC spokesman Omar Ibrahim says. ``We are set to meet the extra call on OPEC to 2030,'' Ibrahim says.

Yet even now, OPEC nations are struggling to keep up. Since 2000, OPEC has gradually lost the spare pumping capacity its members can use as an emergency reserve to moderate prices. The cushion has dwindled to about 1.5 million barrels a day from 6 million barrels a day, Takin says.

What's more, neither the peaksters nor oil industry executives know for sure how much oil OPEC has and how much it can actually produce. OPEC countries haven't been transparent about their reserves or production capacity, says Mike Rodgers, a partner at PFC Energy, a Washington-based oil industry consulting firm. ``OPEC is the big unknown,'' he says.
Overstated Reserves

Many energy analysts believe OPEC nations began overstating their resources in the 1980s, when the cartel linked members' production quotas to the size of their reserves, says Mamdouh Salameh, an independent oil economist. In the late '80s, cartel members raised their reserve estimates by a combined 300 billion barrels even though none of them had actually found much more oil.

In his 2005 book ``Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy'' (John Wiley & Sons, 448 pages, $24.95), Simmons says the Saudis have pumped so much oil so fast that the country's biggest oilfields face declining output.

``Saudi Arabia is keeping everything in the dark,'' Simmons, 63, says.
Saudi officials have dismissed peak-oil theorists and suggestions that their country is running on empty.

Saudi Assurances

``We currently manage approximately 260 billion barrels of oil,'' Abdallah Jum'ah, CEO of Saudi Aramco, the government-owned oil giant, said at an oil and gas conference in June. ``We continue to expand our reserve base, and conservatively estimate our additional potential of recoverable oil to be in the range of 200 billion barrels. At Saudi Aramco's present production levels, that means we will have well over a century's worth of oil to produce.''

Herman Franssen, former chief economist at the Paris-based International Energy Agency, says some OPEC members, such as Iran, Iraq, Kuwait and Venezuela, may be reluctant or unable to produce more oil even as prices soar, largely for political reasons.

``We may never see the volumes of conventional oil production that we see in official forecasts,'' says Franssen, who's now an oil industry consultant in Chevy Chase, Maryland.

Sadad al-Husseini, who spent 35 years working for Saudi Aramco, says Saudi Arabia's reserves are sound but that Kuwait, which says it has reserves of 101.5 billion barrels, probably has half that much. Iran, with official reserves of 132.5 billion barrels, has likewise overstated its reserves, says Husseini, who was an executive vice president at Saudi Aramco before retiring in 2004.

Assume the Worst

``Even with high prices, it will be very difficult for world production of conventional oil to exceed 90 million barrels per day within the next 10 years,'' he says. That's millions of barrels a day short of what the EIA says the world will need in 2015.

Political leaders, business executives and investors should assume OPEC won't be able to satisfy future demand, Rodgers says. ``From an energy-security point of view, if you believe in a non- OPEC peak and OPEC is not being transparent, we have to assume they don't have it,'' he says.

The precarious balance of supply and demand in the oil markets became even clearer in early August when London-based BP Plc announced it would temporarily shut down its Prudhoe Bay oil field on the North Slope of Alaska because of pipeline corrosion. The news drove already-high oil prices up more than $2 to almost $77.

Alaskan Decline

Prudhoe Bay, the largest oil field in the U.S., is part of the peak-oil story. The field was discovered in 1968 and came onstream in 1977. Since then, it has yielded more than 11 billion barrels of oil.

Yet even before the August mishap, this vast field had begun to die. Its output has fallen 73 percent to 400,000 barrels a day from a height of 1.5 million barrels a day in 1989.

Prudhoe Bay is following the life cycle of oil fields across the U.S. and around the world, a phenomenon known as the Hubbert Curve, which takes its name from M. King Hubbert.
Fifty years ago, Hubbert, then a geologist at Shell Oil Co.'s research lab in Houston, postulated that U.S. oil production would follow a bell-shaped curve.

At the 1956 meeting of the American Petroleum Institute in San Antonio, Hubbert predicted that total annual U.S. output would climb steadily, level off sometime between 1965 and '70 and then decline after about half of the country's reserves had been depleted.

Hubbert's Peak

The U.S. reached what geologists now refer to as Hubbert's Peak in 1970. Hubbert died in 1989 at the age of 86.

It wasn't until the late 1990s when Hubbert's ideas, which had percolated for decades in academia and oil circles, began to reach a wide audience via Campbell, the British geologist.
Now in his eighth decade, Campbell is a grandfatherly man with a shock of gray hair. He hardly comes across as a doom- monger. He works out of a two-story house in Ballydehob, a village on the western edge of Ireland.

Campbell spent 40 years exploring for oil for Amoco Corp. and other companies. He helped Amoco search for oil in Ecuador and then, during the 1980s, led its exploration in Norway. He later joined PetroFina SA, the oil exploration company now owned by Total.

After retiring from PetroFina in 1990, Campbell joined forces with Jean Laherrere, a retired French geophysicist who had spent 25 years working at Total, to analyze production profiles for the world's countries.

Campbell says he and Laherrere, now 75, looked at their data and concluded global oil production was approaching its zenith. In 1998, they co-wrote an article for Scientific American magazine titled ``The End of Cheap Oil'' that helped popularize their cause.

Coming Crunch

``The world is not running out of oil -- at least not yet,'' Campbell and Laherrere wrote. ``What our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend.''

In 2000, Campbell founded the Association for the Study of Peak Oil and Gas, an informal organization for fellow travelers. Now known as ASPO International, the group has sponsored five annual conferences, including the one in Pisa in July, which drew more than 230 people. It's now run by Kjell Aleklett, a physics professor at Uppsala University in Sweden. Twenty independent national ASPO groups have sprung up around the world, from Australia to France, to the U.S.

Many peaksters are driven by a moral imperative to spread the word. Campbell says he's a scientist, not a social or environmental crusader. Even so, he says he's worried that oil has harmed human society and the planet. Since the Oil Age dawned, nearly 150 years ago, the Earth's population has soared six-fold, he says.

Man Alone

``Man is the only animal that uses external energy,'' Campbell says.

Asked why he has championed the peak-oil theory, Laherrere quotes Antoine de Saint-Exupery, author of ``The Little Prince'': ``We don't inherit the Earth from our ancestors; we borrow it from our children.''

Activists have jumped on the peak-oil bandwagon and added their own, often strident, voices to the debate over the future of oil.

Jim Kunstler, a writer-activist who lives in Saratoga Springs, New York, says peak oil will ultimately destroy suburbia and plunge the U.S. into a violent dark age of feudalism.

``The question is, Can we run our shit the way we are running our shit?'' Kunstler, 57, says. In 2005, Kunstler wrote ``The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century'' (Atlantic Monthly Press, 320 pages, $23), which warns of the havoc to come.

Dieoff.com

Lifeaftertheoilcrash.net, a Web site run by lawyer and peak- oil entrepreneur Matt Savinar, warns, ``Civilization as we know it is coming to an end soon.'' The site sells peak-inspired books and products, including an investor's guide to peak oil.

Another site, dieoff.com, says wars over oil and other natural resources will eventually erupt and millions of people will be wiped out.

Stephen Andrews, a Denver-based energy consultant who founded ASPO-USA in June 2005, says the alarmists have hurt the peak-oil movement.

``The peak-oil tent has different voices -- some shrill, some more sober -- reaching different conclusions from the same facts,'' Andrews, 59, says.

Andrews has attracted more-sober voices to the movement. Last November, Denver Mayor John Hickenlooper helped co-sponsor a two- day peak-oil conference organized by Andrews.

``I think the people most exuberant about peak oil underestimate how much unconventional sources of oil will help flatten the peak, but to say that there is no peak is shortsighted,'' Hickenlooper says.

Crash Program

The world would have to embark on a crash mitigation program 20 years in advance to prevent peak oil from hobbling the global economy, says Robert Hirsch, a senior energy program adviser at San Diego-based research and engineering firm Science Applications International Corp.

``And I consider myself an optimist,'' says Hirsch, 71, who included his findings in a 2005 study on peak oil for the U.S. Department of Energy and estimates such a program would cost the world $1 trillion a year.

Some investors and analysts see lots of opportunities in a post-peak world.

Charles Maxwell, senior energy analyst at Weeden & Co., an independent research firm based in Greenwich, Connecticut, says high oil prices will spur companies to invest in unconventional sources. Few people, however, realize how much such projects will cost or how long they will take to come onstream, he says.

Take the Canadian oil sands. This region in Alberta holds 175 billion barrels of oil, according to the Canadian Association of Petroleum Producers (CAPP), the world's second-largest reserves.

`Really Big'

``It's big. It's really big,'' Neil Camarta, senior vice president for oil sands at Calgary-based Petro-Canada, says of the region. ``It can keep America going for 25 years.''

The oil sands hold vast stores of bitumen, a tarlike substance that is mined, rather than pumped, and then processed into oil that can be refined. The process is expensive -- and getting more so. Rising operating and capital costs have driven the price of mining and upgrading bitumen to as much as $40 a barrel, Camarta says.

By 2020, Canada's oil sands will yield 4 million barrels a day, almost four times what they do now, according to CAPP. That sounds like a lot until you realize that 4 million barrels is just over a third of what Saudi Arabia produced per day in 2005.

Pickens, who built Mesa Petroleum Co. into one of the world's largest independent oil and gas producers, says he sees trouble -- and opportunity -- in peak oil. Pickens, who collected a degree in geology from Oklahoma State University in 1951, has called for the construction of more nuclear power plants and the promotion of alternative energy. He says he's invested in the Canadian oil sands.

Pickens's Picks

``I'm a disciple of Hubbert,'' Pickens, 77, says. ``I think we've peaked and we are going to see an undersupply of oil.''

Clarium Capital's Thiel says he began thinking about peak oil in 1999. As the Internet bubble grew that year, Thiel, 38, says he started to wonder about other risks that investors might be ignoring and seized on the uncertain future of oil.

``Energy will be systematically undervalued until peak oil is priced in,'' Thiel says. He's bought shares of Calgary-based EnCana Corp., which has invested in exploration and new production, and of oil services companies like New York-based Schlumberger Ltd. and Houston-based Weatherford International Ltd., which stand to profit as explorers hunt for oil and drill wells. Thiel says he's leery of U.S. oil majors, such as Exxon Mobil, because they may become targets of new taxes once the government wakes up to peak oil.

Thiel himself says the peak will come by 2008 -- if it hasn't already. ``Geology will trump technology,'' he says.

Coal, Uranium

Eric Sprott, CEO of Toronto-based Sprott Asset Management Inc., says he became a peak-oil convert after hearing Campbell speak in 2004. Sprott, who helps manage 3.6 billion Canadian dollars (US$3.2 billion), says the bull market in energy has only just begun. He's invested 36 percent of his firm's assets in a variety of areas that could benefit from peak oil. His flagship hedge fund returned 41 percent in 12 months ended July 31, he says.

Sprott's investments include St. Louis-based Arch Coal Inc. and Brisbane, Australia-based Macarthur Coal Ltd. His oil and gas picks include Halifax, Nova Scotia-based Corridor Resources Inc.; Denver- based Delta Petroleum Corp.; and Houston-based Ultra Petroleum Corp. He has also invested in Australian uranium companies Energy Resources of Australia Ltd. and Paladin Resources Ltd.

Midnight Ride

Meanwhile, the peaksters aren't about to let up. They'll convene in Boston on Oct. 25-27 to sound their alarm at a conference called ``Time for Action: A Midnight Ride for Peak Oil.'' The title is a reference to the American patriot Paul Revere, whose horse ride in 1775 warned Massachusetts colonists that British soldiers were advancing. The battle that followed, at Lexington and Concord, marked the beginning of the American Revolution.

It was just 84 years after Revere took his ride, on Aug. 27, 1859, that Edwin Drake struck oil in Titusville, ushering in the Oil Age. Exxon Mobil says the era of oil isn't about to end. In one of its ads, the company says, ``Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year or for decades to come.'' The ad depicts a man looking through binoculars at a snowcapped mountain whose summit is hidden by clouds.

Campbell says the illustration actually drives home the point Exxon Mobil is trying to avoid. ``Even though it is obscured by clouds, we know there is a peak,'' Campbell says. His investor followers are betting he's right.

To contact the reporter on this story: Deepak Gopinath in New York at dgopinath@bloomberg.net .

A Perfect Storm Gathering on the U.S. Horizon

A perfect storm is gathering on the U.S. horizon, and it begs the question, what will our way-of-life look like after the skies clear, should we as a nation not reach political consensus - and fail to act.

The convergence of elements relating to America's dependence on fossil fuels and foreign oil represent profound and ominous consequences: expanding extremism abroad, compounded by indifference at home, both being byproducts of our dependence on fossil fuels:

• Deeply Entrenched Special Interests
  
• Increasing Fossil Fuel Induced Air and Water Pollution
  
• Unabated Nuclear Proliferation
  
• Intensifying Effects of Climate Change
  
• Looming Implications of Peak Oil
  
• Deeply Rooted Oil Dependence in Volatile Regions
  
• Escalating Middle East Tension and Conflict
  
• Increasing Global Confrontation over Decreasing Resources
  
• Mounting Environmental Threats via Mountaintop Removal and Oil Exploration
  
• Economic Volatility via Rising Fuel Costs
  
• Swelling World Population and Industrialization

Each inseparably intertwined with U.S.energy and foreign policies…

Yet, when it comes to the precarious (fossil fuel induced) situation we find ourselves in today, as much as we may want to lay the burden of blame on the doorstep of Capitol Hill and the White House, the real problem lies in our own indifference and failure to hold our past and present leaders accountable.

Perhaps as a nation have we forgotten, democracy is not, nor has it ever been, a spectator sport. In the final analysis...we are response-able!

Since the oil embargo of the early 70’s, it has been an abundance of talk and scarcity of action by lawmakers and leaders, that has brought us to the precipice we now face.

Therefore, with a high degree of confidence, we can assume talk is not the answer, but rather action.

Throughout history we have seen the incredible change one person can bring about when totally dedicated to a cause; Rosa Parks, Nelson Mandela, Mahatma Gandhi, Martin Luther King Jr., to name a few examples. Likewise, monumental change also occurs when many dedicated even a small amount of effort to a worthy cause.


So, how do we as a nation get from here to there?

We must start by asking ourselves, do we care as much as we say we do. Do we care enough to make subtle the changes in our lifestyles indicative of foresight to take a different path, a sustainable path where our children and theirs can follow?

Do we care enough to pick up the phone…to send an email…to sign an online petition? Do we care enough to contact other like-minded people within our circle of influence to ask them to do the same?

In a few weeks time, a bi-partisan effort will be under way to produce a cohesive piece of legislation for presidential approval. The conference committee which will convene on or about September 4th to reconcile the Senate & House bills, will be debating hotly contested items.

Specifically, whether to require electric utilities to produce 15 percent of their power from renewable sources such as wind, solar and biomass by 2020 (today only 2.3 percent of the country's electricity is produced via renewable sources). And, to raise fleet-wide fuel economy standards for cars and trucks to 35 miles per gallon by 2020 (efficiency standards have not been increased in over two decades).

Yet, each proposal is strongly opposed by the utility industry and automotive industry respectively, each having lobbied hard to defeat these initiatives.

Both measures are profound in their impact on reducing GHG emissions and reducing our dependence on countries that do not have our best interest in mind.

Thus, It is up to us to lobby hard for their enactment and provide congress with the support and political confidence to make the right choices!

Take the time now to contact your Senate & House legislators, and let them know you support the 15% renewable by 2020 amendment - as well as raising vehicle fuel economy standards to 35 miles per gallon by 2020.

Let's use our collective power to lead our country to "greener" pastures.

Thank you,
Energize Now Initiative

Start by signing the Fueling the Renewable Energy Movement Petition

FYI...

Edison Electric Institute - call (202-508-5000) and / or environment@eei.org

Atlanta-based Southern Co – call (202-261-5000) and / or email

Ford Motor Company – call 800-392-3673 and / or email

General Motors Company – call 800-462-8782

Chrysler Motor Corp – call 1-800-992-1997 and / or email

"Fueling the Renewable Energy Movement"

When it comes to addressing the security of our nation and planet, we cannot afford politics as usual. Help insure America’s voice is heard in Washington. Please sign the “Fueling the Renewable Energy Movement” petition below:

"The years teach much which the days never knew"
- Ralph Waldo Emerson

Dear U.S. Legislators,

Energy is the common thread running through every aspect of our society; interweaving economic, trade, agriculture, environmental, defense and foreign policies, inseparably linking one to the next. Accordingly, it is no coincidence energy is at the epicenter of the unprecedented challenges facing America today, challenges in the form of fossil fuel & foreign oil dependence.

The energy bills recently passed by the Senate & House of Representatives represent real progress toward addressing America's fossil fuel dependence, environmental and national security concerns.

However, as these historic Senate & House bills make their way to committee and becoming law, more partisan progress is needed.

To act in a manner consistent with that which is best for our nation, final legislation must contain a renewable energy standard requiring electric utilities to produce 15% of their power via clean renewable sources such as wind, solar, etc. It must also include fuel-efficiency increase for automobiles to 35mpg by 2020, and a nationwide utility net-metering standard, a prerequisite to wide-scale adoption of solar energy.

Awareness and understanding of the profound implications of our nation's past and present energy policies is increasing among constituents and the nation's social and political conscience as a whole. Similarly, the consequences of politics as usual, pandering to special interests, and placing party before principle is becoming better understood by many.

Whereas a growing, energized and informed non-partisan movement is under way across the nation, clearing a path for reason to prevail regarding the most important issues of our time: The overriding need to safeguard our planet while obtaining energy independence through conservation and clean, domestic renewable / alternate energy sources.

Be it through indifference, ignorance or blind faith, our actions or lack thereof, all of us have participated in creating the precarious (fossil fuel induced) situation that exists today. Likewise, it will require everyone's participation to bring about a new level of thinking with regard to the environment and our nation's energy independence.

In recognition of our shared responsibility, by signing this petition, we the undersigned each pledge to act for the good of the many...not the few...by making every reasonable effort to promote and practice energy conservation, and supporting clean, domestic renewable energy initiatives. We respectfully request your pledge in doing the same.

With world oil production nearing or at peak capacity; energy demand and climate-change increasing unabated, man's law of supply and demand, coupled with nature's law of cause and effect, will inevitably bring about change. The only question is for better or worse. Will we as a nation have the will to act now...not talk...nor posture or politic, but act out of conscience endeavor to usher in a new energy era, or through indifference will we be acted upon by the environmental, economic and geo-political threats now gathering on the horizon?

Dating back to the Arab oil embargo of 1973, each new administration and congress has pledged to lead our country toward greater energy security. Yet, in the absence of accountability, our previous leaders have been far more proficient at following (money & power) than leading. Consequently, our dependence on foreign oil and fossil fuels has increased year-over-year, as the security of our nation and planet decreases at our own peril.

For these reasons Ladies and Gentlemen, via the inherent power of "we the people" energy security and safeguarding our planet can and will be elevated to the level of national priority... we request your assistance in the effort. For the influence, this legislative session has over America's continued prosperity, our personal future well-being, and that of generations to come, is as powerful as its willingness to exert it.

Our Nation requires your leadership, not to the left neither to the right, but rather to a state of stainable independence...it is time to end the era of fossil fuel and foreign oil dependence!

Respectfully Submitted,

The undersigned