The Peak Oil Crisis: The Studies

Across the world governments are scrambling faster and faster preparing for the coming energy crisis. Delegations from China are everywhere making deals for a share of the soon-to-dwindle oil flow. Almost weekly there is a new announcement from Beijing regarding plans for more wind, solar and biofuels. Japan and Korea are looking for alternative sources of energy supply. Sweden is saying, flat out, that peak oil is coming and is making plans for a fossil fuel-less future.

The European Union is all over the map with plans for alternative fuels, new regulations on energy consumption, and efforts to guarantee an energy supply for the continent.

Meanwhile, energy exporters are reveling in their newfound wealth and influence while in the poorer corners of the world people are quietly shutting off the lights. For many, the oil age ended when oil reached $60 a barrel.

Here in America, however, there is as yet little sense of urgency about the future of our energy supply. Last summer when gasoline was $3+ a gallon and warnings of devastating hurricanes were in the air, Congress was indeed thrashing about in an attempt to reassure the voters they would do something prior to the fall elections. But the storm subsided, the hurricanes went away, oil stockpiles climbed, gasoline settled back to $2, and all was well. With a sigh of relief, the Dow-Jones surged to a new all-time high.

Should any of you be feeling complacent, however, let me reassure you that the world is still burning 85 million barrels a day (b/d), there really have not been any important new discoveries, no world-saving technological breakthroughs have come to light, and you are only continuing to drive because so many of the world’s peoples can’t afford $60 oil.

Beneath the surface in America, however, there is movement. The Democrats now control the Congress and are already floating proposals that could help with the coming crisis. These include rolling back tax breaks for the major oil companies, probing off-shore lease deals, providing more money for renewable fuels, pushing for diesel and electric cars, and settling the spent nuclear fuel issue.

Of more long-term significance, however, two major studies of the prospects for world energy supplies are currently underway in Washington. The first of these is being done by the Government Accountability Office and is to be released on February 28. This study will actually deal with the prospects for "peak oil" — when it will come and what can be done to mitigate the consequences. The GAO was asked by the House of Representatives Science Committee to undertake this study that has been underway for over a year.

The second and what on the surface sounds the most in-depth study of world energy resources ever undertaken is being done under the auspices of the National Petroleum Council (NPC). This council, a federally chartered and privately funded advisory committee to the Secretary of Energy, was established by President Truman in 1946. Its purpose is to represent the views of the oil and natural gas industries with respect to any matter relating to oil and natural gas. Note the words "the views of the oil and natural gas industries" as they just may come back to haunt us after the two studies are released.

On October 5, 2005, Energy Secretary Bodman sent a letter to the NPC asking what the future holds for oil and gas supplies, can supplies continue to be found at affordable prices, and just what does the oil and gas industry recommend to ensure our prosperity? The issue was promptly accepted for study and the next seven months were spent planning and getting organized. Two weeks ago the NPC released an updated status report outlining the details of just who is studying what.

The scope and work plan for the study are truly impressive. Task groups are to work on supply, demand, technology, and geopolitics. The task groups are to be overseen by a coordinating sub-committee that in turn reports to a Global Committee and finally to the NPC leadership itself. These task groups are supported by 25 "cross-cutting" subgroups, which are to examine smaller topics such as biomass, nuclear power, and "non-proprietary data." At last word some 200 people were involved in the NPC effort. The study also is reaching out to nearly everyone who can spell "oil" — academia, laboratories, professional societies, consultants, governments, industry and you-name-it.

From reading the work plan for the study, one can’t help but be impressed by how thorough and comprehensive the study will be. Of particular interest is the opportunity to use and assess proprietary information about the world’s oil reserves and prospects for production held by participating oil companies.

What can we expect from these studies? The GAO effort will almost certainly be the straightforward professional exercise we have come to expect from this organization. The study will probably acknowledge that world oil production will peak someday and the researchers, who work for the Congress, will do their best to give a balanced answer to questions of when production will peak and what might we do about it.

As for the NPC study, it would be unfair to prejudge something that has not yet been written. Considering its proposed scope and the number of people involved in the drafting, it may provide much valuable new data and many insights into the prospects for the earth’s energy resources. It could even turn out to support the idea that severe energy shortages lie just ahead and give a balanced presentation of the prospects for energy during the next 25 years.

On the other hand it is hard to avoid noting that several of the leaders of the NPC study have long records of vehemently opposing the idea that world oil production will peak within the next 10 years. Moat notable of these are the study’s chairman, Lee Raymond, formerly of ExxonMobil, and Daniel Yergin of Cambridge Research Associates.

If one were cynical, you could believe that the NPC study, which by definition is to provide the oil and gas industry’s position, was commissioned to provide a counterweight to the independent GAO study should it conclude that peak oil is for real and imminent. The timing of the two studies’ release will of course give the NPC plenty of time to incorporate or attempt to refute whatever evidence or logic the GAO cites in reaching its conclusions.

No matter what the studies conclude, the possibility that our oil supplies will decline in the near future is one of the most, if not the most important issue facing the world in the coming century. These studies are bound to play a major role in the coming debate.