The Peak Oil Crisis: CERA Week 2007

If you are in the energy business then “CERAWeek,” a convention in Houston put on by the energy consulting firm Cambridge Energy Research Associates (CERA), was the place to be last week. Attending this “world renowned event” were some 1,600 “CEOs, sheiks, professors, analysts and energy decision makers,” who paid up to $5,500 to listen to 120 distinguished speakers pontificate on the future of the world’s energy supplies.

Now, some of you may recall that the Cambridge Energy folks are the ones who don’t believe peak oil is imminent. They believe this so fervently that they are constantly issuing papers and writing articles “proving” that geological limits to the continued expansion of oil supplies are decades away. Thus it seems natural that when Cambridge Energy orchestrates an energy convention, it starts with the underlying premise that the world economy and oil production will continue to grow nicely for at least the next 25 years.

ExxonMobil CEO Rex Tillerson’s “state of the industry” address set the tone. “The good news is that abundant oil resources are available to meet the projected growth in demand. According to the U.S. Geological Survey, the earth was endowed with more than 3 trillion barrels of conventional oil. This estimate has grown steadily over the years as our industry has developed new and more sophisticated technologies to locate and produce these resources. If we add estimated ‘frontier’ resources, such as heavy oil and shale oil, this total rises to over 4 trillion barrels.” So much for this peak oil nonsense.

Later at a panel discussion of peak oil, John Watson, the president of Chevron’s international exploration and production division, added a touch more sophistication and a note of caution to the rather simplistic “there are 4 trillion barrels left” assertion. While agreeing with the premise there is plenty of oil waiting to be tapped, Watson raised the issue of “above ground forces” that just might cause problems.

According to Watson, “those forces include blocked access to oil both in North America and elsewhere, high costs of finding oil, and lack of incoming skilled engineers and others to replace the industry’s aging workforce.” Such issues could make the peak oil debate "irrelevant" in Watson’s view for "above-ground peak oil will trump below-ground peak oil every time."

So there you have it, the current industry and therefore CERA’s official and at least public, position. We in the industry are right and peak oil proponents are wrong— there is plenty of oil accessible under the ground to let the industry keep growing. However, if you politicians up here on the surface would only stop having wars, stop nationalizing our oil fields, let us drill everywhere we want, and invest trillions in new exploration and production, everything will be fine. Otherwise all bets are off.

There is a subtle distinction here that we all need to understand. If future oil shortages are caused by geology – simply running out of oil that can be produced at affordable prices – then peak oil is inevitable, a God-given fact of nature. On the other hand, if oil production peaks in the next few years and if it is caused by people –-wars, restrictions, nationalizations, and an irresponsible lack of investment — then there is still hope for a bright prosperous future.

There was, of course, much more to the CERA conference than simply ignoring the mounting evidence for peak oil. This year “above ground factors” such as Russia and Venezuela nationalizing oil fields, major increases in oil exploration costs, and the specter that global warming is about to result in real worldwide restrictions on carbon emissions, were prominent in the discussions.

On these issues, the industry is more in touch with reality than with its long-term prospects. When somebody expropriates the oilfield that you just spent $20 billion developing or starts sending your employees home in body bags, it gets your attention. The core of the conference was focused on producing oil in a changing environment.

As global warming will probably turn out to be the defining issue of our age, ExxonMobil’s current take on the subject is always of interest. In his keynote address, Exxon’s CEO Tillerson set out the new industry position. (They just recently got over years of denying that global warming was caused by people burning their oil.) Tillerson starts off by acknowledging “that the risks to society and ecosystems from climate change could prove to be significant.”

From there, however, things get a little murky. The industry position seems to be that a lot more research is needed to find ways of reducing emissions without upsetting the apple cart of global growth and prosperity. The best solution naturally will be for the markets to sort it all out. Most importantly, the oil industry needs to be at the table when governments debate what to do about global warming; otherwise, the industry could just get seriously hurt if some government or other does something irresponsible like placing restrictions on fossil fuel consumption.

We now get to the key question about CERAWeek. Why would anybody hold a future-of-energy conference today and paper over the issue of oil depletion which looms larger with each passing day? The answer may be simpler than it seems.

One day in the next few years an event will take place that will make the reality of imminent peak oil impossible to ignore. It may be a hurricane, terrorist attack, coup, assassination, a wider war, or even an unprecedented surge in the futures markets. Whatever the event is, it will immediately be apparent to everyone that a new era for our energy consumption has arrived and as with 9/11, there is no turning back.

The consequences of universal recognition our energy supplies are starting to slip are impossible to predict – but they are likely to be very, very bad. Thus, from the perspective of many, there is no need to face these inevitable consequences until the last possible moment –- keep the good times rolling.

In this light, the true role of CERA and its “week” becomes clearer. It is the chosen instrument of the status quo to provide a “credible” intellectual basis, no matter how weak, for denying the reality of imminent peak oil as long as possible.