Text II Peak Oil for Dummies by Tom Rogue - August 09, 2009 Over the past decade, a fierce debate has emerged amongst energy experts about whether global oil production was about t

Text II

Peak Oil for Dummies

by Tom Rogue - August 09, 2009

Over the past decade, a fierce debate has emerged amongst energy experts about whether global oil production was about to reach a peak, followed by an irreversible decline. This event, commonly known as “Peak Oil” far outreaches the sole discipline of geology. From transportation to modern agriculture, petrochemicals and even the pharmaceutical industry all of them rely on one commodity: cheap and abundant oil. In order to sustain the needs of an ever globalized world, oil demand should double by 2050.

Nonetheless, geological limitations will disrupt this improbable scenario. In fact, a growing proportion of energy experts argue that Peak Oil is impending and warn about the extraordinary scale of the crisis.

According to the 2009 BP Statistical Review, the world has precisely 42 years of oil left. Those numbers come from a very simple formula, the R/P ratio, which consists of dividing the official number of global oil reserves by the level of today’s production.

Nevertheless, this methodology is dangerously defective on several key points as it ignores geological realities. Oil production does not consist of a plan level of production that brutally ends one day; it follows a bell-shaped curve.

Indeed, the important day occurs when production starts to decline, not when it ends. As it is a non-flexible commodity, even a small deficit in oil production can lead to a major price surge.

Finally, the R/P ratio does not acknowledge that production costs increase over the time; the first oil fields to be developed were logically the easy ones and so the most profitable. It is well recognized that remaining oil fields consist of poor quality oil or remotely located fields which need high technologies and expensive investments. Therefore, relying on the R/P ratio gives a false impression of security while the actual situation is critical.

Oil is a strategic resource; therefore having oil is a key political and economical advantage for a state. This is why politics interfere in the evaluation of oil reserves, especially in countries with poor accountability records; that is, the majority of OPEC countries. In fact, OPEC oil reserves have dramatically increased during the 1980s and 1990s. However, they have not discovered major oil fields after the 1970s. At this conjuncture, the question of what lays behind these fluctuations needs to be asked.

The geologist Dr. Colin Campbell, founder of the Association for the Study of Peak Oil and Gas (ASPO), explains the hidden reasons that led to these changes: “In 1985, Kuwait, added 50% to its reserve. At that time, the OPEC quota was based on the reported reserves; the more you reported, the more you could produce.”

Fellow OPEC members who were unwilling to see the influence of Kuwait growing, simply raised their reserves soon after. Moreover, OPEC countries continue to present their reserves as flat despite having extracted huge amounts of oil during the past twenty years.

At this point, we should not forget that oil reserves reported by these countries are not audited by independent experts. In 2006, the notorious Petroleum Intelligence Weekly said it had access to confidential Kuwaiti reports which stated that reserves were half the official numbers.

The question of oil reserves is most relevant. As oil exporting countries have less oil in their ground, Peak Oil will arrive faster. Oil optimists who argue Peak Oil is still decades away rely on these same erroneous data.

In addition, if importing countries assume oil reserves are abundant as they do, the crisis will be unexpected, unprepared and misunderstood; in one word: overwhelming. Similarly, once oil shortages occur, oil importing countries may assume that exporting countries are deliberately reducing their oil exports to harm their national interests.

Such a flawed assumption from oil importing countries is likely to have serious repercussions, and eventually lead to new oil wars.

http://seekingalpha.com/article/154901-peak-oil-for-dummies, access on March 14, 2010.

The aim of Text II is to