December 15, 2007

The mother of all energy crises

Robert L. Hirsch, PhD

POWER readers today face severe problems in the electricity supply business. But a much bigger problem will soon burst on the scene: the peaking of world oil production. Experts have forecast peaking since shortly after the first U.S. well began production in 1859, and many subsequent forecasts of peaking have proven incorrect.

 

Oil reserves dip

But oil is a finite and rapidly depleting resource. There is no question that world oil production will peak at some time. In 2005, the Royal Swedish Academy of Sciences noted that 54 of the world’s 65 most important oil-producing countries were past peak production and in decline. The academy also observed that the rate of adding new reserves worldwide was less than a third of the rate of world consumption. Others believe in a much higher ratio.

The timing of maximum world oil production is uncertain, largely because of poor and biased data, so forecasts have varied widely. Recently, a number of highly qualified professionals have concluded that the world seems to be on an oil production plateau, with declines waiting in the near future. Included in this group are industry stalwarts such as Henry Groppe, T. Boone Pickens, and Matt Simmons. Ken Deffeyes, retired Princeton geologist, believes that peaking began at the end of 2005. The competent and outspoken Sadad al Husseni, retired executive vice president of Saudi Aramco, recently had the courage to make the same point. His knowledge base may be better than that of any other oilman.

Why is the issue flying below the public radar? Partly it’s because many economists believe that as the price of a commodity increases, more supply will come to the market. That theory has worked for minerals. But oil geology is fundamentally different. Furthermore, the experience of the past five years belies economic doctrine.

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