The Peak Oil Crisis: A Report to the Senate

Last fall Australia’s Senate, concerned about the future of the country’s oil supply, directed a standing committee to conduct an inquiry. The Committee was charged with investigating projections for the production and demand for oil inside Australia and globally, and the implications for the availability and price of transportation fuel. In essence, the Committee was asked to investigate peak oil.

To gather information, the Committee advertised hearings and wrote to many organizations inviting submissions. In response came 192 written replies from all over the world. The Committee also held nine public hearings. Two weeks ago the preliminary findings were issued as an interim report. A final report is to be released next month.

This report to the Australian Senate is important in that an independent public body, after reviewing a wide range of evidence for and against the imminent peaking of world oil production, has reached conclusions and made recommendations.

The report is refreshing in that it approaches peak oil backwards. Instead of launching into the reasons many believe world oil production will peak soon, the report begins by reviewing the reasoning behind the “official” predictions that it won’t.

The “official” arguments that most governments, oil companies, and international organizations use to argue that there are many decades of increasing world oil production ahead are roughly as follows:

•    Estimates of world oil reserves continue to grow faster than the 31 billion barrels we consume each year.

•    The US Geological Survey (USGS) estimates that there are still another two trillion barrels of conventional oil under ground — either in known reserves or waiting to be discovered. High prices and improving technology will allow this oil to be discovered and brought to market.

•    Current high oil prices are an aberration caused by a rapid, unexpected increase in demand, particularly from China, and the lack of sufficient investment to satisfy this demand in recent years.

•    Tar sands, heavy Orinoco oil, and shale are cited as yet another reason there is even more oil left to be exploited.

The critique of the “official” government and oil industry predictions by peak oil proponents starts by noting that their estimates of recoverable reserves are simply over-optimistic and that a geologic peak for conventional oil is likely somewhere in the next 25 years.

Peak oil proponents cite the following:

•    World discovery of oil peaked in the 1960s. The world is presently using oil faster than it is finding more. Production in many major oil-producing countries is in decline.

•    Oil reserves reported by Middle East countries are self-serving and untrustworthy. State-owned oil companies do not release detailed production data and do not permit independent audits.

•    The USGS estimate of world oil reserves, made in 2000, is “thoroughly flawed.” The estimated extrapolated US experience, under which new fields were assessed conservatively and then allowed “to grow” over time, is criticized as not being applicable when the oil fields being found today are much smaller than those found in the past. If the USGS projection that there are still some two billion barrels of conventional oil underground is true, the world would be finding far more oil than it is today.

•    The critics of the “official” predictions note that while 500-600 billion barrels of non-conventional oil exist, the difficulty, cost, and environmental problems associated with exploiting this oil is so great that it is largely irrelevant to offsetting large declines in conventional oil production that are expected shortly.

In commenting on the two positions, the Senate Committee made some interesting observations. Those who assert that imminent peaking of oil production is unlikely commonly assert that increasing oil prices will bring more exploration and a higher rate of recovery from existing fields. The Committee notes that the increasing costs associated with advanced oil recovery techniques, such as ultra-deep drilling, may be reaching a point where the costs outweigh the benefits.

In one of the more telling findings, the report comments: “peak oil proponents have criticized official estimates of future oil supply with detailed and plausible arguments. The Committee is not aware of any official agency publications that attempt to rebut the peak oil arguments point by point in similar detail.”

The major finding of the report is stark and simple. “In the Committee’s view the possibility of a peak of conventional oil production before 2030, even if it is no more than a possibility, should be a matter of concern. Exactly when it occurs (which is now very uncertain) is not the important point. Australia should be planning for it now, as Sweden is doing with its plan to be oil free by 2020.”
Other findings also show a sophisticated grasp of the issue. “If the price of oil declines in the next few years . . . this does not dispose of peak oil concerns. Peak oil is a different and much longer term concern.”

In subsequent chapters, the report goes on to examine the social impact peak oil will have on Australia, and what can be done from the supply and the demand side to mitigate the situation.

After noting that almost no thinking has been done beyond 25 years from now, the Committee notes, “in view of the enormous changes that will be needed to move to a future that is less dependent on conventional oil . . . longer term planning is needed.”


About Abare
The Australian Bureau of Agricultural and Resource Economics (ABARE), located in Canberra, is an Australian government economic research agency noted for its professionally independent research and analysis. ABARE employs around 150 staff comprising economists, statisticians, modelers, mathematicians and support staff.