Peak Oil News: 06/01/2005 - 07/01/2005

Thursday, June 30, 2005

Could Experimental Thermonuclear Reactor Save the World From Peak Oil?

Resource Investor

By David J. DesLauriers

TORONTO ( -- The investment community is familiar with the threat posed by 'Peak Oil', and Resource Investor has done its part to keep its readers informed on the situation with articles highlighting some well-known prognosticators including Boone Pickens, Henry Groppe and Matt Simmons, and the threat they see of a crisis emerging.

What investors, and those who ponder the future of cheap energy might not be aware of is an international project at the experimental stage called the "International Thermonuclear Experimental Reactor (ITER)," that could supply "enough electricity to last the world for the next 1,000 years." Indeed, the word ITER means "the way" in Latin.


For those interested in getting down to the scientific nitty-gritty, the ITER website is awash in information. A general overview for the basic speculator/layman follows:

ITER is the experimental step between today’s studies of plasma physics and tomorrow's electricity-producing fusion power plants. It is based around a hydrogen plasma torus operating at over 100 million °C, and will produce 500 megawatts of fusion power.

"ITER seeks to mimic the way the sun produces energy, potentially providing an inexhaustible source of low-cost energy using seawater as fuel. ITER would have an advantage over current nuclear reactors because it would be cleaner. It would not rely on enriched uranium fuel and it would not produce plutonium, which is a concern from a terrorism point of view."

A leading scientist involved with the project said yesterday "If we can really make this work, there will be enough electricity to last the world for the next 1,000 to 2,000 years. So it is really quite important but quite difficult to do it." He went on to compare the level of complexity involved to "landing a man on the moon." Optimists and believers in human advancement will note that this was achieved decades ago.

ITER boils down the aspirations for the project in simple terms.

Controlled nuclear fusion promises:

* To be environmentally benign;
* To be widely applicable;
* To be essentially inexhaustible.

That promise must be demonstrated on ITER and by all future plants.

This promise comes down to understanding:

* How safe is fusion?
* What natural resources are needed to make it work?

In the Joint Declaration of the nations involved, issued from Moscow, the collaborators on the project emphasize "the importance of exploring the long-term potential of fusion energy as a virtually limitless, environmentally acceptable and economically competitive source of energy" and also that the governments involved are "mindful of the critical importance of safe and reliable implementation of the construction, operation and decommissioning phases of ITER, including for the purpose of demonstrating safety and advancing the social acceptability of fusion as an energy source."


The United States, the 25-member European Union, Russia, China, Japan and Korea are the major players collaborating on ITER.

The Boston Globe reported that "The planned $13 billion project is one of the most prestigious and expensive international scientific efforts ever launched."

"Japan and France, backed by roughly equal factions in the consortium planning the project, had competed fiercely for the prestige and economic benefits of hosting the project. But Tokyo agreed to a compromise: The fusion reactor is to be sited at Cadarache, near Marseille in southern France, while Japan will have the next-largest role in the project. Cadarache has one of the biggest civilian nuclear research centers in Europe."

"According to the agreement reached yesterday, the European Union as a whole will cover 40 percent of the cost and France alone will cover another 10 percent. The remaining half will be paid by the other five partners, including the United States, at 10 percent each. France will provide 40 percent of total staffing and Japan 20 percent."

American Involvement

Nuclear Engineering International published a report earlier in the month stating that "The Bush administration is at odds with the House energy appropriations bill, criticising what it sees as underfunding for programmes aimed at supporting new nuclear developments and calling for funds from oil and gas appropriations to be diverted into nuclear efforts."

So much for Bush and Cheney being in the pocket of Big Oil.

"The administration is also critical of the House decision to more than halve funding to the International Thermonuclear Experimental Reactor (Iter) development, although the bill does increase fusion research funding to more than that requested, it directs these funds to domestic fusion R&D, rather than towards Iter."


"The experimental reactor project was conceived at an international summit in 1985 as a showpiece for cooperation during the Cold War. Construction of the reactor is expected to take 10 years to complete. The reactor itself is budgeted to cost about $6 billion and will produce about 10,000 jobs. The rest of the $13 billion is for associated research, a significant portion of it in Japan."

The proposed ITER plant at Cadarache has enormous potential and could lead to the building of a prototype power station in about 30 years time.

A detailed technically oriented timeline with four phases is hashed out on the ITER website.


Ian Fells, of the Royal Academy of Engineering in Britain and an expert on energy conversion told the newswires yesterday "I give it a 50-50 chance of success but the engineering is very difficult,"

"Scientists know it could work because they know the hydrogen bomb works. But the problem they face is trying to do it in a controlled manner so the heat can be used to generate electricity."

"In the course of the reaction it produces a lot of neutrons and they get into the actual fabric of the machine and over years it becomes radioactive, so there is still a problem of decommissioning."

Nonetheless, ITER maintains that “the energies are enough to damage the investment, but not to cause sufficient damage to affect the general public. The plant is designed with various lines of defence to avoid the possibility of contamination outside the plant in the case of such hypothetical accidents."

In addressing the potential for a leak of radioactivity, they also find little cause for concern: "Under the worst case accident scenario, the extra annual dose the most exposed individual would receive is about double that of natural radiation (which itself varies by more than this factor from place to place). Even under the worst accumulation of accidents (for which no chain of events can be envisaged), evacuation of the most exposed individual would not be required according to ICRP and IAEA guidelines."

In terms of a terrorist attack, which is playing on everyone's mind these days - prohibiting development of important energy sources like liquefied natural gas (LNG) - ITER concludes that it cannot say that a terrorist attack wouldn't cause serious repercussions, but "protection of any industrial plant against malicious intent is necessarily a high priority in its design these days. ITER is no different or special in this respect than other similarly complex plant (e.g., chemical, pharmaceutical, oil refining) dealing with potentially dangerous substances."


Not surprisingly, Greenpeace has already issued a statement expressing its contempt for ITER. Apparently, energy sources that cause pollution are bad, but so are clean energy sources. The title of the Greenpeace press release is "Nuclear fusion reactor project in France: an expensive and senseless nuclear stupidity."

The group continues, "Greenpeace deplores the agreement by the Representatives of the Parties to the International Thermonuclear Experimental Reactor (ITER) (1) to construct one of the world's largest nuclear fusion experiments in Cadarache, Southern France. The project, estimated to cost 10bn euros, will not generate any electricity, instead it will need massive amounts of energy to heat up."

Deplores? That's harsh wording. The main area of contention here is that this potentially world-altering project is going to be expensive and will use energy in its testing. Maybe the world should sit on its hands, or return to hunter-gatherer days?

"Fusion energy - if it would ever operate - would create a serious waste problem, would emit large amounts of radioactive material and could be used to produce materials for nuclear weapons. A whole new set of nuclear risks would thus be created."

"Governments should not waste our money on a dangerous toy which will never deliver any useful energy," said Jan Vande Putte of Greenpeace International. Instead, they should invest in renewable energy which is abundantly available, not in 2080 but today."

Vande Putte apparently has not grasped that wide scale implementation of wind farms and solar energy is not yet a viable economic reality. He also seems to miss that the sheer scale of the benefits ITER could deliver if it works are what justifies the cost. It is easy to preach from the Ivory tower when one is not concerned with economic realities.


Despite its detractors, ITER is a project whose benefits could be of literally inconceivable proportions in providing the world with cheap energy. For that reason, every effort must be made to see through the long process of development ahead.

If peak oil has just occurred, or is set to occur in the next few years, ITER based plants coming online in three decades or so could prove very timely. Maybe by then there will be economically feasible ways to harness the wind and the sun, but in the meantime the scientists must apply their trade.

This is a refreshing reminder of mankind's ingenuity, inventiveness and ability to conquer nature in positive ways that continue to boost the world's standard of living.

Tuesday, June 28, 2005

Venezuela has the largest oil reserves in the world; move over the Middle East

David Coleman

President Hugo Chavez says Venezuela has the largest oil reserves in the world and he plans to show the world that Venezuela's proven oil reserves have been underestimated and that they easily outweigh previously proven oil deposits in the Middle East.

Chavez says that Venezuela's estimated 78 billion barrels together with with an estimated 238 billion barrels of tar oil in the Orinoco Heavy Oil Belt make it "the largest petroleum reserves in the world."

Petroleos de Venezuela (PDVSA) says Venezuela's proven oil reserves have been underestimated since the reserves in the Orinoco Belt have not previously been included in studies calculating all the nation's oil reserves.

The eastern Orinoco heavy crude has been marketed by previous governments as a substitute boiler fuel (Orimulsion) and that it was not included in conventional oil reserve calculations since it was originally designed and patented to compete with coal. It was for that reason alone that it was not taken up under established Organization of Petroleum Exporting Countries (OPEC) production quotas.

* Now PDVSA plans to include the Orinoco reserves in Venezuela's conventional oil reserves, a move that marks a shift in Venezuela's governmental oil policy.

PDVSA says that previous governments had sold Orimulsion at a fraction of oil prices and then started to mix it with lighter crude to make it marketable, and consequently must be recognized as a part of Venezuela's total oil reserves.

Sidelined opposition-faithful industry analysts claim that the Venezuelan government is intent on increasing Venezuela's proven reserves to regain negotiating power inside OPEC ... they continue to deny government figures and say Venezuela is producing well below its OPEC quota and has no available output capacity to boost its negotiatory influence with other members of the oil cartel.

Permaculture and Peak Oil

portland imc

Andy Lockman

Peak Oil and Permaculture explains the dynamics of the impending peak in global oil production and the implications for Australian society. Declining energy availability will spell the end of global economic growth and the consumerist culture it supports.
Permaculture is introduced as one of a number of related, radical cultural alternatives that can be adopted for the transition to a post-consumer world.

Peak oil: you may have heard the term a few times lately or this may be a first, but it is unlikely to be the last time you come across the idea that global oil production is about to start its terminal decline. In the last two or three months this issue has left the confines of a small but committed community of peak oil analysts and leapt into the mainstream press. Analysts are warning that peak oil will be the defining event of this century, that it will rival climate change as the focus of sustainability, and that the world as we know it will change beyond recognition in a very short period of time. How could an event of this magnitude have remained outside mainstream awareness for so long?

If you think back to the first time you heard about global warming, it probably did not register all that highly on your list of impending global catastrophes. But, once the concept was explained as theGreen House Effect, where increasing concentrations of industrial gases like CO2 turned the atmosphere into a gigantic hothouse, it probably became a little clearer. Peak oil, the dark twin of climate change, has no such easy metaphors, however it does require understanding a few unfamiliar concepts.

The first concept to understand is that our whole way of life is dependent on cheap, abundant hydrocarbon energy sources, mostly oil and natural gas. Not only are many of the things we take for granted made from oil and natural gas feed stocks, but more importantly almost everything we depend on contains high amounts of embodied energy sourced from these hydrocarbon fuels. Embodied energy is the amount of energy it takes to make something. The materials we take for granted in modern industrial economies, like concrete, steel, plastic, rubber and the products we make them into like cars, roads, factories and houses all take extraordinary amounts of energy to produce, transport and operate. Thanks to fossil fuels, we are now living in an era of enormous energy availability, embodied into historically unprecedented amounts of material wealth. This state of affairs is a recent development, but already it has become the norm and expectation of nearly everyone in the industrialised world and the desire of increasing numbers in the developing world.

The second thing to understand is that global oil production is about to peak and then forevermore slowly but inevitably decline. Shortly after, so will natural gas, the only other widely available energy source comparable to oil. It took the dedicated work of a small number of retired oil geologists and industry analysts to expose the impending peak in global oil production. Up until they started publicizing their work, the conventional oil industry wisdom was that supplies could continue to grow at 2-3% per year, just like they always had, for many decades to come. It turns out that this conventional wisdom is getting harder and harder to justify. The peak oil advocates are increasingly seen as being accurate and the figures coming out of organizations with vested interests in helping big oil companies protect their image as good investments are increasingly seen as unreliable and unlikely.

Both the US Geological Survey and the International Energy Agency have used suspect methodologies to make predictions consistent with oil industry expectations. Highly regarded retired oil geologists like Colin Campbell of The Association for the Study of Peak Oil ( have taken years, accessing the best data available, to painstakingly demonstrate beyond doubt that the peak in oil production will come much earlier than expected. It could even be happening now, and will most certainly occur within the decade. Part of the reason for the interest in peak oil lately is that financial markets are looking for reasons for the high price of oil. If its supply can be increased, why is the price staying so high? Increasingly now the interpretation, even by large conservative financial institutions, major banks and Wall Street investment houses, is that global oil production is indeed reaching its peak.

What about alternative energy sources? Can't we just switch over to solar or wind or even nuclear power? This is the most difficult concept in understanding the importance of peak oil. Not all energy sources are created equal. What makes oil and gas so attractive is that they have very high energy returned on energy invested or energy/profit ratios. Every energy source requires an investment of some energy to make it available. Oil needs to be located, drilled for, pumped, refined and delivered to the petrol station to be a useful form of energy. All this activity takes energy. Oil has historically had a very high energy/profit ratio. Until recently, it took roughly 1 barrel of oil worth of energy to make over 20 barrels available at the petrol station. This is an energy profit ratio of over 20:1. The reason for this is that oil and gas are very concentrated forms of energy. Essentially they are fossilized sunlight in the form of dead plants, concentrated into hydrocarbons by the work of immense geological pressure and temperature over long periods of time. The energy profit ratio of oil is now dropping sharply as the biggest and easiest deposits are being depleted. The energy profit, or net energy availability, determines the potential material wealth of a society, not the technologies which burn that energy.

I recently saw an ad for a device promising free energy from the sun. It costs $1000. I already have one-- called a solar panel. I have invested in a Free Energy Machine for my house. The catch is that I have to invest in a technology that took an awful lot of fossil fuel energy to produce. The universe is full of free energy, but we must always invest some energy to make it available. It is like the old business adage: you have to spend money to make money. If I spend 100 units of energy to make my solar panel and over its 40-year life it pays me back 400 units of energy, then the solar panel has an energy profit ratio of 4:1. Solar energy is abundant, but diffuse, and so are other alternatives like wind and tidal power. After 30 years of research and hundreds of millions of dollars spent, solar energy has not increased in efficiency by more than a marginal amount. In economic terms, if we were to switch to solar power tomorrow it would be like taking an 80% pay cut.

It takes 1500 regular-sized solar panels to provide the energy needed to power my four wheel drive utility at full speed for one hour. It takes less than 15 litres of petrol to do the same. One barrel of oil (200 litres) contains an amount of energy equal to the energy expended by 60 people working every day for a whole year! Wind and solar currently provide less than a �½ of one percent of the global energy mix and even at record growth rates they are not predicted to grow at more than 10% per year. The International Energy Agency recently issued a report stating we must start creating an alternative energy infrastructure 20 years before the onset of peak oil to avoid severe economic dislocation. Things do not look encouraging.

In 2020 there will be the same amount of oil available as there was in 1985. This does not sound like a catastrophe; however, economic growth is dependent on energy growth. If peak production takes place within the next five years, then by 2020 it is clear that energy descent will be well under way. The corporate global economy cannot function without economic growth- the whole system is dependent on growing energy availability to support growing material wealth to support growing money supply. When oil and gas production peak, total global energy availability will start its terminal decline and so will the global economy.

As long as we can adjust our consumption then things could be all right. Studies show that people are happiest when they have enough wealth to meet their needs and a few of their wants, but no more. Energy descent may not be so bad, if it removes a few of the things that are making us unhappy, while leaving us in a position to meet our needs. The challenge lies in learning to change our expectations and take on a whole new set of understandings and behaviours necessary during the coming era of decreasing energy availability.

This is where permaculture comes in. Permaculture is the only discipline that has been created to deal with the energetic aspects informing sustainability. From a permaculture point of view, peak oil marks the end of the growth phase of global industrial society. This is a natural part of the life cycle of any dynamic system. First there is a growth phase, and after the concentrated, high-grade resources have been used up and total resource availability starts to drop, the system starts to decline. Permaculture is about learning the principles and practices that allow us to work with natural energy flows rather than relying on fossil fuels.

Permaculture is only partly about growing food and living more self-sufficiently. Permaculture is a design science that uses the patterns of nature to mimic ecological systems. Natural systems have evolved for millions of years to maximize the energy available from the sun. If we are to live well in the post-fossil fuel world, we will have to learn to do the same. Permaculturists have organic gardens because it is a way to grow good food on a low energy budget. They use clever design to make life easier and agriculture more productive. When the oil is gone, permaculture will offer some of the best strategies we know of for maintaining high levels of well-being. Permaculture is undergoing a renaissance as a set of principles and practices for the post-oil world where individuals and communities can learn to live well while we ride the downside of the energy availability curve.

How far off are the major effects of peak oil? It depends on a number of factors, but it is very unlikely to be farther out than a decade. One could argue that we are feeling the effects now, it is just that we are telling ourselves a different story about why we went to war in Iraq, why we are bullying the Timorese over offshore gas fields, why people try to bomb us and why we have to work harder and harder to stay afloat financially. If peak oil is the story then a lot of these events start to make more sense, and then we can start to understand how to prepare in order for the energy/culture transition to be a much more positive experience. In every challenge there is opportunity.

The black stuff has world order over a barrel

The Guardian

Everyone knows oil will run out one day, but some industry experts predict the decline will start as soon as 2008

Larry Elliott

Crude oil is at $60 a barrel and rising. British motorists are paying record prices on the forecourts. The £1 litre may not be that far away. Traders on commodity exchanges are warning that a cold winter in the northern hemisphere could see prices, already up 38% since the start of the year, rise a lot further.

Policymakers are clearly worried by the short-term picture. The G8 summit at Gleneagles next week will discuss the likely impact of high oil prices on the global economy and what the rich countries of the west ought to do in response. Every other surge in the price of oil in the past 30 years has been associated with a slowdown or full-scale recession in the world economy, and the fact that the increase seen since the start of 2003 has so far been shrugged off is no cause for complacency. Higher oil prices raise business costs and cut the real incomes of consumers; that means profit margins are shaved and consumer spending is blunted.

The real problem, however, concerns the longer term. There is a strong possibility that what we are facing now is not simply a temporary mismatch between demand and supply that can be sorted out by Opec pumping more oil or by exploiting marginal fields in the world's most inhospitable places. Rather, it is that we are in the early stages of an energy crisis that will fundamentally affect our lives over the next few decades. If that is so, western policymakers need to be thinking hard - and thinking hard now - about what life is going to be like when the oil and gas run out.

Everyone knows that oil will not last for ever. The world is not going to move from current levels of production to zero overnight; there will be a long process of gradual decline. Using techniques originally developed by M. King Hubbert to assess the profile of US oil production, industry experts can estimate, with a high degree of certainty, the high point of global output - or peak oil, as it is known.

Hubbert calculated this with accuracy for the US, pinpointing the 1970s as the zenith of production. For the North Sea, peak oil was at the end of the 1990s.

The world as a whole has yet to reach that point. But before you breathe a sigh of relief, consider this. If the experts are right, global peak oil could arrive in 2008.

The estimates cannot be precise. It could be that a big fall in demand or the exploitation of new reserves could push the date back, but the experience of the US is that the opening-up of the Alaskan fields and drilling in the Gulf of Mexico merely shifted the date of peak oil back a few years.

Once peak oil has passed, the models suggest stocks will dwindle over a period of three decades at a time when, on current trends, demand for energy will be rising strongly. In 30 years, oil production could be down by three quarters.

This is a staggering figure. Two hundred and fifty years of industrialisation have been built on the availability of cheap fossil fuels, first coal, then oil and gas. It is not just our cars that depend on oil, it is our entire way of life. To take one example, the massive increase in agricultural productivity would not have been possible without oil-based fertilisers. Fossil fuels have made it possible to sustain a world population that has tripled since the 1920s. For the past century oil has been the lubricant for capitalism in a period which has seen the fastest growth, by far, in history.

A world without oil is bound to represent a massive economic, social and political shock. It's not hard to construct a dystopian vision. First, there will be a power struggle over dwindling oil stocks. Already, there are signs of a new Cold War emerging as the US and China seek to curry favour with poor African countries that are seen to have potential as oil suppliers. It could get a lot worse that that. The oil junkies of the west will be like heroin addicts suffering from cold turkey: prepared to do whatever it takes to get a fix. Given that reserves of oil and gas are concentrated in parts of the world that could hardly be called politically stable, this does not bode well.

Second, there is a threat of economic retrenchment. As the American scientist Colin Campbell puts it in a book published today* "Cheap and efficient transport opened the world to trade, while the manufacture of consumer goods exploded. The new energy also transformed agriculture, providing the food for a growing population that has expanded sixfold, exactly in parallel with oil production. Oil was in turn followed by gas, increasingly used for electricity generation, which brought power and light to households throughout the world. Now as the 21st century dawns we face the onset of the natural decline of the premier fuel that made all this possible, and we do so without sight of a substitute energy that comes close to matching the utility, convenience and low cost of oil and gas."

When we fret about whether the economy is growing by 2.5% a year or 3% we are ignoring the gorilla in the room: our way of life is unsustainable without a cheap and reliable form of energy. We may soon be waking up to lower growth, falling populations and a reduction in living standards. Indeed, without urgent policy action we are likely to get all three.

So what are we doing to prevent this? Well, not a lot. The first response is to deny there is a problem and dismiss talk of a pending energy crisis as scaremongering. A second response is to say that it might be a possibility, but will occur on somebody else's watch. A third is to follow the example of Mr Micawber and assume that something will "turn up". That "something" is normally nuclear power. In the light of the potential challenge, this is an inadequate response.

There is both a practical failure and a conceptual failure here. The practical failure is to see nuclear power as a magic bullet. Where it exists, nuclear has only been possible through enormous public subsidies and, as a report due to be published by the New Economics Foundation will outline later this week, the true cost of nuclear has been underestimated by a factor of three (even leaving to one side the possibility of terrorism or accidents).

There has been an opportunity cost, of course. Every pound spent on nuclear could have been spent investing in cleaner alternatives such as wind, wave and solar power. Some countries have seen the light. Germany has abandoned nuclear and is heavily subsidising solar energy produced by photovoltaic cells, currently 30 times as expensive as energy produced by fossil fuels, in the expectation that the long-term investment will pay dividends. Germany, Japan and the US are the world leaders in solar power; the UK is nowhere.

The conceptual failure is to assume not only that business as usual is possible, but that it is also desirable. Peak oil is likely to be the point of diminishing returns for the entire big-economy, growth-at-all-costs, free-trade, globalised model of capitalism. Factor in a 75% drop in oil production and the current strategies for production, distribution, transport and town planning don't look so clever. As energy prices soar, it will seem ludicrously wasteful to cart goods halfway round the world. Countries that do not have their own local supplies will have to pay through the nose. Protectionism will cease to be a dirty word. Localisation will be all the rage.

*The Final Energy Crisis; edited by Andrew McKillop and Sheila Newman; Pluto Press; £15.99.

Sunday, June 26, 2005

Fossil fuels' demise oversold - Boring fact is oil not soon tapped out


As the U.S. Senate debates the national energy policy, many are aware of the hype surrounding this academic construct. A Web search of "peak oil" turns up an array of experts who believe that a pending peak in world oil production will soon lead to global economic collapse.

In their rosier scenarios, experts predict sky-high gasoline prices that will crush oil-dependent economies like the United States. In their darker forecasts, they say people won't be able to obtain food, heat their homes or live securely during a period of global famine and resource wars.

All of this might be entertaining were it another subject for a Hollywood film, but it has become almost a subculture (and cottage industry). For those who wonder if the global production of oil will peak and begin to decline some day, the answer is yes, it will. The more pertinent question is: Should you care?

Although talk of peak oil has rightfully focused global attention on the need to find alternatives to oil, the absolute peak of world oil production is an issue of supply and, in many ways, irrelevant. Unlike the 1973 oil embargo, in which high prices were the result of an OPEC-orchestrated supply cut back, high prices today are largely a reflection of demand-supply imbalance.

The global demand for conventional oil has, or will soon, outstrip the global capacity to supply conventional oil. Does that mean we are all doomed?

While the shock value of doomsday peak oil predictions is entertaining, it is far more important to recognize the reality of high global energy demand and begin to seek solutions — such as the energy policy being debated in the Senate — that could help mitigate the supply-demand imbalance. Solutions abound, but will take planning and coordinated investment.

In 1956, M. King Hubbert predicted correctly that U.S. oil production would peak in the early 1970s. As an aside, Hubbert predicted incorrectly that world oil would peak in 1995. What Hubbert also missed is that advances in technology would allow producers to extract oil from known fields far beyond the technology capacity of his day. Because of these advances, the shape of the oil production curve is not really a peak at all, but more of a bumpy mesa.

If there is an important peak of oil, it actually occurred in the early 1980s when oil consumption as a percentage of total global energy topped out just shy of 50 percent. The percentage has declined today to around 40 percent, a trend that has been remarkably consistent and unshockingly boring.

Hubbert can be excused for incorrectly forecasting the impact of technology, but modern-day forecasters should know better. They often claim that oil supply is made worse by modern enhanced oil recovery techniques that drain reservoirs faster. In fact, the reverse is true. The combination of higher energy prices and advanced technology will continue to extend the life of conventional oil supplies via enhanced oil recovery processes.

So what are the realistic near-term alternatives to conventional oil?

Most experts recognize the age of conventional oil will fade during 21st century. Energy demand in Asia and other developing regions will continue to outpace supply and keep oil prices high and volatile.

Fortunately, price and technology will allow for production of heavy oil, tar sands and shale oil, whose combined global reserves far exceed those of conventional oil, as well as coal liquefaction and gasification, improved gas-to-liquids technology and alternatives to oil led initially by conventional and unconventional natural gas.

Contrary to some reports, natural gas resources worldwide are substantial.

Better still, unconventional forms of natural gas, such as coal gas, shale gas and tight gas, are often found in regions where oil is not. This is good news for energy markets, which have been overly dependent upon oil from the top five oil-producing countries that control nearly 75 percent of the world's conventional oil reserves.

The challenge of natural gas is not resources, but deliverability. As liquefied natural gas ports are permitted and built around the globe, natural gas will become a global commodity and help reduce issues of deliverability that have caused price volatility. Natural gas combined with other non-coal sources of fuel will likely surpass oil as a percentage of total global energy consumption between 2015 and 2020. This crossover already happened in the United States around 1994.

If no substitute for oil existed, the world would indeed be in for an energy shock, and possibly an economic collapse. Fortunately, that is not the case, but investment must start today. U.S. energy policies must be aggressive, must focus on efficiency and conservation measures, and should lead the world in a smooth transition to an unconventional oil, clean coal, natural gas, nuclear and emerging energy supply-future. Our economy and environment will be the prime beneficiary.

This is not a shocking prognosis; it is, rather, a boringly achievable one.

Tinker is the state geologist of Texas and director of the Bureau of Economic Geology at the University of Texas at Austin's Jackson School of Geosciences, where he holds the Allday Endowed Chair. He spent 18 years in the energy industry and lectures extensively on the future of energy.

Simulated oil meltdown shows U.S. economy's vulnerability

By Kevin G. Hall

WASHINGTON - Former CIA Director Robert Gates sighs deeply as he pores over reports of growing unrest in Nigeria. Many Americans can't find the African nation on a map, but Gates knows that it's America's fifth-largest oil supplier and one that provides the light, sweet crude that U.S. refiners prefer.

It's 11 days before Christmas 2005, and the turmoil is preventing about 600,000 barrels of oil per day from reaching the world oil market, which was already drum-tight. Gates, functioning as the top national security adviser to the president, convenes the Cabinet to discuss the implications of Nigeria's spreading religious and ethnic unrest for America's economy.

Should U.S. troops be sent to restore order? Should America draw down its strategic oil reserves to stabilize soaring gasoline prices? Cabinet officials agree that drawing down the reserves might signal weakness. They recommend that the president simply announce his willingness to do so if necessary.

The economic effects of unrest in faraway Nigeria are immediate. Crude oil prices soar above $80 a barrel. June's then-record $60 a barrel is a distant memory. A gallon of unleaded gas now costs $3.31. Americans shell out $75 to fill a midsized SUV.

If all this sounds like a Hollywood drama, it's not. These scenarios unfolded in a simulated oil shock wave held Thursday in Washington. Two former CIA directors and several other former top policy-makers participated to draw attention to America's need to reduce its dependence on oil, especially foreign oil.

Fast-forward to Jan. 19, 2006. A blast rips through Saudi Arabia's Haradh natural-gas plant. Simultaneously, al Qaida terrorists seize a tanker at Alaska's Port of Valdez and crash it, igniting a massive fire that sweeps across oil terminals. Crude oil spikes to $120 a barrel, and the U.S. economy reels. Gasoline prices hit $4.74 a gallon.

Gates convenes the Cabinet again. Members still disagree on whether America should draw down its strategic oil reserves. Homeland Security chief James Woolsey, who ran the CIA from 1993 to 1995, argues that a special energy czar is needed with broad powers to bypass the bureaucracy and impose offshore oil drilling and construction of refineries.

That won't help now, though, or resolve any short-term issues, counters Gene Sperling, who was President Clinton's national economic adviser.

The energy secretary suggests that relaxing clean-air standards could help refiners squeeze out every last drop of gas. That makes the interior secretary, former Clinton Environmental Protection Agency chief Carol Browner, bristle. She blames Detroit for the mess because automakers failed to develop hybrids and other fuel-efficient cars.

The Cabinet can't agree on even the simplest short-term solutions. There aren't many options beyond encouraging car pools and lowering thermostats. There's no infrastructure in place to deliver alternative fuels such as ethanol or diesel made from soybeans or waste products.

Fast-forward again, to June 23, 2006. Emboldened Saudi insurgents attack foreign oil workers, killing hundreds. A mass evacuation follows from the world's pivotal oil producer, the one country that could be counted on to boost production during shortages in global supplies.

A take-charge guy with a Texas accent who led the CIA from 1991 to 1993, Gates calls yet another war-room meeting. Global recession looms. The world economy turns on cheap oil. Without foreign oil workers, how will Saudi Arabia meet its production targets and quench the oil thirst of America, China and India?

Oil prices have reached an unthinkable $150 a barrel. In Philadelphia, Miami and Kansas City, Mo., gas prices reach $5.74 a gallon. Now it takes $121 to fill that midsized SUV.

You get the picture. The scenario is intended to show how vulnerable the U.S. and world economies are because of dependence on oil from places where political instability threatens orderly production and distribution.

This year the world is consuming about 84 million barrels of oil a day. America alone guzzles about 20.8 million barrels a day. Experts think oil-producing nations have only 1.5 million barrels a day or less of unused production capacity right now. A disruption anywhere could cause market panic and spiking prices. That's largely why oil and gasoline prices are so high right now.

Saudi Arabia and other countries are trying to increase production, but that won't help much before next year at the earliest. Meanwhile, any hiccup in production, delivery or refining could cause disaster.

"A million or a million and a half barrels of oil a day off the market is a very realistic kind of scenario. You can think of a dozen different countries around the world ... where you can see that happening. Or even a natural disaster could do that," Gates said in an interview.

Former CIA chief Woolsey described as "relatively mild" the scenarios that the National Commission on Energy Policy and the advocacy group Securing America's Future Energy simulated. Both groups are pushing for reduced dependence on conventional oil.

"It was striking that by taking such small amounts off the market, you could have such dramatic impact" on world oil prices, said Robbie Diamond, the president of Securing America's Future Energy.

Richard Haass was a top adviser to former Secretary of State Colin Powell until 2003. The simulation taught him how little influence policy-makers would have in reversing an oil shock wave.

"I think where most of the work has to happen now, both intellectually and politically, is on demand" reduction, Haass said.

Oil at $100 a barrel will do more to save the planet than all the wind farms in the world

The Independant

Hamish McRae

What will the world do about its use of energy in the next few years - and more specifically, might expensive oil force much more radical changes than at present seem likely?

The oil price is the outward and visible sign of an energy market under strain. At close to $60 a barrel, it is approaching its highest level in real terms as well as being the highest in current dollars. It may not be quite up to the $80 peak it touched in the early 1980s but the present levels look more likely to be sustained. This is because the high price is driven by strong demand rather than restrictions on supply by Opec.

You can catch some feeling for this in the new edition of the BP Statistical Review of World Energy. World energy use grew by 4.3 per cent last year, which is the largest increase ever in absolute terms and the largest percentage increase since 1984. Every region increased its demand but the most dramatic rise came from China. The Chinese economy grew by 9.5 per cent, itself a stunning figure. But its energy use increased by 15.1 per cent. Over the past three years, Chinese energy demand has gone up by 65 per cent, and the country now uses 13.6 per cent of the world's total energy.

And number two in the league table for increases in energy use? You can guess it: India, where demand has grown by 7.2 per cent - albeit on a lower base.

If you look at oil, rather than energy in general, last year saw the fastest rise in use since 1978. That was despite record oil prices, which in turn were despite record oil production, which rose above 80 million barrels a day for the first time.

So the producers did their bit - and have gone on doing so this year too. But still the oil price rises. Short of some catastrophic collapse in the economies of China and the US - the world's two largest oil users - demand seems set to climb inexorably, while supply ... well, what about supply?

Production was indeed at record levels last year, but that was thanks to Opec and to Russia. Two producers cut production sharply. They were, yes, the UK and the US. We are not cutting North Sea production because we want to; we are cutting it because we cannot produce any more. The same goes for the US.

This leads to the debate about the world's total oil supplies. The conventional view, that of the major oil companies, is that while production will eventually peak, there is plenty of oil still to be found, and that production can rise at least for some years to come. The radical view, articulated by the Association for the Study of Peak Oil, is that global production is already close to its peak and may start to decline after 2006.

A lot will depend on the ability of Saudi Arabia, the world's largest producer, to maintain or increase its output. As it happens, one of the people who has most clearly argued the view that Saudi Arabia is close to its peak production, the energy investment banker Matt Simmons, has a book out next month, the title of which explains his thesis. It is Twilight in the Desert - the coming Saudi oil shock and the world economy.

His views are well known. He feels that the Saudis have been too secretive and so outsiders cannot make an accurate assessment. But he notes that the main oil fields in Saudi Arabia were all discovered a generation or more ago and that, while better technology may enable higher production now, it does not increase the amount of oil in the ground. The faster it comes out, the less of the stuff there is left.

When experts disagree, what should the rest of us make of this?

The first point to be clear about is that while there is an oil problem, there isn't really an energy problem, or at least not an immediate one. The left-hand graph above shows that while oil is the largest single source of primary energy, it supplies only about 40 per cent of the total. Mind you, add in gas and you have about 60 per cent. Coal is plentiful, although there are serious environmental concerns about its use.

The next point is that non-fossil fuels, of which nuclear and hydro are by far the most important, as you can see, are a tiny fraction of the total by comparison. That is not to say they should be disregarded; simply that they cannot help much.

The third point is that different parts of the world have a different balance in their energy supplies. You can see that in the right-hand graph. Thus the Middle East unsurprisingly uses oil and gas for almost all its needs. The Asia/Pacific region (including China and India) uses coal as its largest single source of power. And Europe, which for the purposes of this exercise includes the whole of Russia, uses the highest proportion of gas - but then, Russia does have a lot of that.

So it is perfectly possible to substitute to some extent between oil and gas - compare Europe's usage with that of North America. And it is possible to get by with less oil and gas, as the Asia/Pacific region does, provided you can put up with the problems created by burning coal.

The final point which seems to me to be glaringly obvious is that whatever happens to climate change as a result of using fossil fuels will be determined by the US, China, India and Russia, rather than by the EU. That is not an argument for Britain doing nothing, for we all have a responsibility to be, well, responsible. But we won't change the outcome.

If that appears a rather dismal conclusion, there is also a more hopeful one. If the world were to adopt best practice for energy use, it could maintain its standard of living on perhaps 80 per cent of present consumption, maybe a bit less. The useful effect of higher oil prices is to drive the world towards adopting best practice. The market mechanism might succeed where international political debate has largely failed.

Consider a world where oil remains not just at its present levels but rises above $100 and shows every sign of staying there. If we want to increase our living standards we would start to ask whether we want to spend our money on energy or on something more agreeable. Expensive energy would give a huge drive for people, companies and governments to save it wherever they possibly could.

More than this, if economies are to go on delivering better standards of living, the only way to do so will be to become "greener" - to do the opposite of China, which is using more energy per unit of output, by increasing output without increasing energy use.

What we cannot know is whether the oil price is already sufficiently high to force radical change. On the other hand we can be pretty sure that if it isn't, then it will go still higher. We shall, I suspect, see some brutal movements in energy prices in the next few years, particularly if the world is indeed close to the peak of its oil production.

No wonder Europe's bankers get nervous when they look East

The world's main central banks have suddenly become frightened. No, they won't admit it, of course, because that is not what central bankers do. But it is not difficult to see that they are now worried - and this goes for the Bank of England, the Federal Reserve and the European Central Bank - that the world might catch the Japanese disease: deflation.

The outward sign of this is the change in mood over interest rates. A few weeks ago, people here in Britain expected another rise in rates sometime this summer. In the US, the Fed was expected to make several more upward moves. And in Europe it was a question of when its first upward move would come, in the autumn or next spring.

Now things are completely different. Here, two members of the Bank's monetary committee have voted for a cut, and the betting on that is somewhere between August and next January - my own guess is October. In the US they expect one more rise, maybe two, but not more. And a cut, not a rise, is back on the agenda for the ECB.

The situation varies slightly in each place. In Britain, it is clear that the rises so far have clobbered the housing market and hence retail sales more seriously than the Bank expected. In the US, growth in consumer spending has eased a little (though maybe not enough) and there is now at least a discussion about a housing bubble, a possible prelude to the sort of slowdown we have seen here. In Europe, the fear is that some parts of the eurozone, in particular Germany, may be facing a classic liquidity trap. That is when cuts in rates do not stimulate the economy because the additional funds are saved, not spent. That happened in much of the world in the 1930s and in Japan in the 1990s.

Yet all this is taking place with the oil price at $60 a barrel. What seems to be happening is that globalisation - competition from low-cost producers, especially in China and India - is holding down world prices. So low interest rates do not lead to current inflation. Any excess money goes into asset prices, especially property and fixed-interest securities, but also to some extent shares. That is dangerous in the long run because asset price bubbles burst. Will the central banks get the balance right? No one can know. But it is certain that the peak of the current interest cycle will be the lowest since the 1950s.

Beyond Oil: The view from Hubbert's Peak

By Kenneth S. Deffeyes
Hill and Wang; ISBN 0–8090–2956–1

Reviewed by Kellia Ramares
Online Journal Associate Editor

The supply of oil in the ground is not infinite. Someday, annual world crude oil production has to reach a peak and start to decline. It is my opinion that the peak will occur in late 2005 or in the first few months of 2006. I nominate Thanksgiving Day, November 24, 2005, as World Oil Peak Day. There is a reason for selecting Thanksgiving. We can pause and give thanks for the years from 1901 to 2005 when abundant oil and natural gas fueled enormous changes in our society. At the same time, we have to face up to reality: World oil production is going to decline, slowly at first and then more rapidly.—Kenneth S. Deffeyes, Beyond Oil, p. 1.

June 25, 2005—Kenneth S. Deffeyes is a professor emeritus of geology at Princeton University and one of the geologists who has been warning us for years about Peak Oil. Beyond Oil is the follow-up to his book Hubbert’s Peak: The impending world oil shortage, which was published in 2001.

As a young geologist, Deffeyes actually worked with M. King Hubbert of Hubbert’s Peak fame at the Shell lab in Houston. Deffeyes’ interest in oil supply began in 1958 and his own analysis of Hubbert’s numbers inspired him to leave the oil industry for academia well prior to his scheduled industry retirement in 2000.

Beyond Oil is a slim volume packed with many facts, pictures and charts describing important matters such as: the conditions under which nature makes oil and natural gas, and methods of exploring and drilling for oil and gas. (These things are especially good to know if you find yourself at a cocktail party or political rally with one of those wishful thinkers who claim there’s lots more oil down by the mantle of the earth).

Reading the book gave me the impression that its author, a self-described native Oklahoman, part Choctaw, second-generation oilman who remembers the Dustbowl (Great Depression, 1934), is definitely not ready to give up on the industrial way of life. But he clearly recognizes that we are facing permanent decline in the production of the oil and gas that made 20th Century industrialism possible. And he is cognizant of the commercial, environmental and political problems of non-renewable fossil fuels.

In Beyond Oil, Deffeyes describes in some detail the shortcomings of previous attempts and current plans to get energy from other geologic sources such as coal, tar sands, oil shale, and uranium. For example, Deffeyes writes:

. . . the environmental problems with increased coal burning are not easily solved. Research efforts to solve coal’s sulfur, carbon dioxide, and other environmental problems go back more than twenty years. We cannot pretend that coal’s problems will be solved in a year or two by a crash research program.

Heavy-oil extraction is a major consumer of energy.

. . . oil from oil shale [is] a high-sulfur, less-than-premium crude oil.

From a public relations standpoint, it would be preferable to discuss nuclear power plants without ever raising the unpleasant subject of nuclear weapons. However, to get a clear overall perspective, we regretfully have to discuss bombs as well as generating electricity. The two histories, the two technologies, and the need to bring both under control are heavily intertwined.

Deffeyes’ affable personality, well demonstrated in video interviews, is reflected in his writing style, making Beyond Oil one of the more enjoyable and easily read books on the impending global world oil shortage that has come out in recent years. But don’t be fooled. Behind the affability is serious science and a warning best summed up on page 33: “The first time the price swings downward, cornucopians will chant in unison that there was no Hubbert Peak. Don’t listen.”

Cornucopians are people, primarily economists, who think that there is still plenty of oil to go around; all we need is more investment and higher technology to find and get it.

As I was reading Beyond Oil, the price of the near-month light, sweet, crude futures contract, which is the price that makes the news all the time, did get down to about $47/barrel. I did not hear the cornucopians chant that there was no Hubbert Peak. But then again, I wasn’t listening. Sure enough, on Friday, June 17, 2005, the day I wrote this review, the market closed for the week at $58.47, a record high.

K�llia Ramares is the producer of an audio documentary called “Peak Oil.” Information on it can be found at her website: Radio Internet Story Exchange.

Friday, June 24, 2005

What does "Peak Oil" mean to you?

American Public Media

Click to listen to this public radio commentary.

A long view on oil from commentator Mark Hertsgaard.

Famed Oil Tycoon Sounds Off on Peak Oil

Resource Investor

By Michael J. DesLauriers

TORONTO ( -- In recent months, legendary oil baron, T. Boone Pickens has become increasingly vocal about his view that peak oil is upon us and high prices are here to stay.

According to Business Week, the 77 year-old magnate has made more money betting energy prices would rise in the last five years than he did in the preceding half century working in the oil patch. Today, Pickens is the Chairman of BP Capital Management, a hedge fund that manages roughly $2.5 billion (about a third of that number is Pickens' personal wealth), and has been delivering for its investors in a big way.

If an investor had put up $1 million at the fund’s inception in 1999, the stake would be worth a whopping $28 million today. When hedge funds get it right, they really get it right!

The Man

Boone Pickens started his career in the early 1950's as a roughneck in oilfields in Oklahoma and Texas. He then became a geologist for Phillips Petroleum until 1954. In 1956, Pickens founded Mesa Petroleum and Petroleum Exploration with two other partners.

The next few decades witnessed massive growth for these companies, which ultimately emerged as Mesa following several mergers. The company became the nation's largest independent domestic producer of oil and gas, and one of its biggest gas producers.

Pickens achieved real notoriety in the 1980's after repeated attempts (some involving greenmail) to takeover major oil companies because of his conviction that acquisition opportunities in the marketplace were more profitable than exploration and production.

His Call

Addressing the 11th National Clean Cities conference last month Pickens said, "Global oil [production] is 84 million barrels (a day). I don't believe you can get it any more than 84 million barrels. I don't care what [Saudi Crown Prince] Abdullah, [Russian Premier Vladimir] Putin or anybody else says about oil reserves or production. I think they are on decline in the biggest oil fields in the world today and I know what's it like once you turn the corner and start declining, it's a tread mill that you just can't keep up with...So, when you start adding the reserves in these countries, you're not even replacing what you're taking out."

A little back of the envelope math was also quite enlightening, "84 million barrels a day times 365 days is 30 billion barrels of oil a year that we're depleting. All of the world's [oil] industry doesn't even come close to replacing 30 billion barrels of oil. We don't spend enough money to even give ourselves a chance to replace 30 billion barrels. It may be because the prospects are not there. I rather imagine that's what the answer is to that."

If we have achieved peak production but demand continues to grow with massive emerging economies in the far east and population growth, how will we achieve balance?

"Now you see the projections for the fourth quarter of '05, I mean like tomorrow; it is 86 to 87 million barrels of oil a day required. China [and] India [are growing fast. Our economy is going down a little bit, but it doesn't seem to be shutting off demand for gasoline, oil, natural gas, whatever. But around the world... just assume that the (U.S.) economy is slowing, but China is still ramped up; it is still 86, 87 million for the fourth quarter...Now we've got some pretty good inventory, those will be... I think...they'll be gone in the third quarter. I can't wait to see how this is all going to play out."

Big Oil

According to Pickens, the truth about the growing oil problem will not come from conventional sources. "The majors, they talk about plenty of oil and that they can produce more, but if you look at ExxonMobil, ChevronTexaco, BP (British Petroleum), all the production [is] going down every year. They don't replace and they don't add to production, but they say there's plenty of oil around.

"Now why would they say that? One of the chief economists with one of the major oil companies... I was at a conference where he was... we were talking and I asked, why do they say that? And he said, can you imagine what would happen if one of these major oil company's CEO's got up and made a speech and he said, 'We're running out of oil'? I said there'd be panic and he said, 'That's right. They're not going to make the statement. They're going to say there's plenty of oil around."


At the conference Pickens was calling for $60 oil by year-end. We have already seen it, and the forward curve is looking at even higher prices. As recently as Tuesday, Pickens told the Reuters Energy Summit, "I think people are scratching their heads as to whether the world will accept $60 like it did $50...You could go to $70, but at some point it's going to cost on the demand side. Sixty may slow everything down."

Oil Sands

Like Simmons, Pickens doesn't believe that the oil sands are an effective substitute. Pickens said Tuesday that huge development costs and a tight labour supply will prevent the Alberta oil sands and other unconventional means of production from covering the shortfall in supply. That said, Pickens holds a big stake in both the Canadian Oil Sands Trust [TSX:COS.UN] and Suncor Energy [TSX:SU].

According to Boone, "You add about a million a day [of oil sands production] for about $40 billion per million, that's about $360 billion dollars to add 9 million barrels a day...Could it be done? The money could be available for that. I'm not so sure if the human resources could do it."

In terms of other unconventional production sources, Pickens believes that with high oil prices and government assistance, the possibility for a bona fide shale play to develop in the Rocky Mountains is distinctly possible.


Resource Investor has now published three stories about peak oil, from authorities the likes of Matt Simmons, Henry Groppe and now T. Boone Pickens. Clearly the threat is very real and is still under-appreciated on Wall Street. In fact, many analysts are still calling for $25 oil, something they have been doing for the past 3 years, even as prices more than doubled, and more recently as the futures curve moved from backwardation into contango.

If $60 oil is here to stay, all sorts of opportunities are created for investors, not only in the shares of oil industry companies with more cash flow than they can handle, but also in some of the alternative routes for energy. If one’s portfolio has no exposure to black gold and is only negatively affected by its drag on the economy, the time to work it in as a hedge may be now.

If Pickens has managed to multiply his capital 28-fold in 6 years, it is probably incumbent upon readers to listen up.

The Peak Oil Crisis, Part 8: Has It Started?

Falls Church News-Press

By Tom Whipple

Earlier this week oil prices surged to an all time high thus raising the question: “Has the crisis begun?”

Before examining the current situation, it might be useful to define what constitutes the “peak oil crisis.” The quick answer is, the crisis begins when worldwide demand for oil outstrips supply on a more or less permanent basis. This will lead to significantly higher gasoline prices (many dollars per gallon) and all sorts of very bad things happening to the U.S. and other economies.

We will only know peak oil has been reached some years after it happens by noting that worldwide oil production is indeed on the decline, and, shows no prospects of ever reversing the situation. As the world will only achieve peak oil once, nobody really knows what the actual peak will look like: gradual, flat, bumpy, or steep.

The key issue is the supply-demand balance, which, from all available evidence, is becoming very tight as we approach the half way point of 2005. It doesn’t matter exactly which year the statisticians someday proclaim the actual all-time peak oil production. If gasoline costs more than you can afford, or, is simply not available in the quantity you would like, then you have a crisis.

A fundamental principle of recent oil consumption is that demand is always much heavier in the second half of the year when the demands of the U.S. summer driving season and the buildup of heating oil stocks in the northern latitudes take place. Thus, even given no interruption of oil supplies, run-away price increases are more likely to develop in the last two quarters any year.

As we approach the second half of 2005, we should remind ourselves that several of the world’s major oil suppliers are far from bastions of political stability.

Iraq , Iran , Nigeria , Venezuela , Saudi Arabia , the former Soviet Union and even Norway (oil workers strike in the offing) are all involved in situations that could easily result in reductions of their oil exports during the next six months. Given the current supply-demand balance, an incident in any of these countries will almost certainly send prices up. Way up.

Even if nothing untoward happens, recent news affecting the supply-demand balance has been mostly bad. In the past month, no serious observer, without a political agenda, seems to believe the OPEC control mechanism that has regulated supply for the last 30 years is still working. Many observers believe OPEC currently is pumping flat out. Given most OPEC countries are now in the stage of declining production, the chances any significant new quantities of oil will appear on the world market in the next year are very low.

During the first quarter of this year, worldwide production was reported to average 83.8 million barrels a day. The International Energy Agency is now saying global demand is projected to reach 86.4 million barrels per day by the fourth quarter of this year— a 2.2 percent growth over last year. Given that reports from most producing countries talk of slowing or declining production, it seems almost certain a significant supply-demand gap will open later this year.

When this happens, we enter a period of “demand destruction”, when oil and gas prices rise and rise until they are high enough to bring demand back into line with available supplies.

Even though the world is not the same as it was during the 1970’s, our experience with the 1974 oil embargo and the Iranian revolution gives a rough guide to what might happen during a supply-demand imbalance later this year. In 1980, oil peaked at the inflation-adjusted equivalent of $95 a barrel or some $4.50 per gallon. Demand for gasoline in North America is notoriously inelastic and given the state of alternative forms of transportation, $4-5 per gallon (roughly $5,000 per year in gasoline costs for the average vehicle) may not dampen demand that much. Europeans have been paying a heavily taxed $5-6 per gallon for years.

The next number people are mentioning in the context of “demand destruction” is $7.50 per gallon. This is a number that will not bring transport to a total halt, but will make most of us think twice before turning on the motor. “Is this trip necessary?” Somewhere around $3-4 the bottom really falls out of the SUV market along with business that is dependant on discretionary/recreational travel. Needless to say, increases of this scale will set in motion significant economic turmoil that will lead to major economic restructuring.

The forces leading to much higher energy costs and eventually serious shortages are moving into place and should be apparent to all within the next six months.

Has the crisis begun? The answer to the question is increasingly looking like a solid “Yes!”

Thursday, June 23, 2005

Biomass Chemistry


Biomass Chemistry
A Newly Electric Green – Sustainable Energy, Resources and Design

"Peak Oil" continues its march to memetic dominance, and a greater number of pundits and politicians not previously known for talking about the environment have started to ask what happens when oil runs out. For many who embrace the "Peak Oil Is Here" idea, the answer is simple: chaos, because petroleum is at the heart of much of industrial and agricultural production, not just transportation.

But that's not the only scenario. There has been quite a bit of research into alternative means of producing the materials we now make using oil. Biomass is the top candidate for oil equivalents, and indeed biodiesel has been getting more attention of late as a renewable and low-net-carbon method of fueling vehicles, both by renewable energy advocates trying to move away from fossil fuels and by researchers trying to improve the efficiency of biodiesel production. Biomass is also being used as an experimental feedstock for chemicals now requiring petroleum. And by stretching the definition of biomass a bit, even fertilizer -- a favorite of the apocyphiles -- can be made without fossil fuels.

Converting biomass to biodiesel is not terribly efficient -- depending upon the base plant, it can sometimes only produce marginally more energy than is used by the conversion process. But researchers at the University of Wisconsin have come up with a new method of biofuel production that is significantly more efficient than previous technologies (and is double the efficiency of current ethanol production). This development is able to convert the carbohydrates in plants -- about 75% of the dry weight -- into fuel. In an interesting bit of biomimicry, the process is similar to the way in which carbohydrates are used in the body to produce energy:

"It's a very efficient process," says Huber. "The fuel produced contains 90 percent of the energy found in the carbohydrate and hydrogen feed. If you look at a carbohydrate source such as corn, our new process has the potential to creates twice the energy as is created in using corn to make ethanol."

About 67 percent of the energy required to make ethanol is consumed in fermenting and distilling corn. As a result, ethanol production creates 1.1 units of energy for every unit of energy consumed. In the UW-Madison process, the desired alkanes spontaneously separate from water. No additional heating or distillation is required. The result is the creation of 2.2 units of energy for every unit of energy consumed in energy production.

Although the UW process takes many steps, the researchers are confident that it can be improved quickly. The bigger roadblock to implementation is the need for biofuel refineries:

The key is building biorefineries that balance the energy. A refinery balances energy requirements of each process with those of other processes and the chemical intermediaries of each process are either separated as final products or used elsewhere in the refinery, said Dumesic.

As noted, biomass can be used to replace more than fuel. Green Car Congress notes that chemical company Codexis and Cargill has announced a new process that converts corn sugars to a "chemical intermediate" called 3HP.

The new process will utilize very low-cost, clean agricultural feedstocks instead of petroleum to produce 3HP. 3HP is a key intermediate for several commercially important chemicals. The chemicals that can be produced from 3HP include acrylic acid, acrylamide and 1,3 propanediol. Acrylic acid and its derivatives are used to create a wide range of polymer-based consumer and industrial products, such as adhesives, paints, polishes, protective coatings, and sealants. This new process is cheaper and more environmental friendly than the old process that uses petroleum as a feedstock.

[...] Sugars and lipids from agricultural crops can be used in many products, replacing increasingly expensive oil and natural gas, which are currently the main feedstocks of the chemical industry [...]

Undoubtedly, more work needs to be done to make the resulting chemical products more environmentally friendly, but the point here is the ability to find alternatives to petroleum feedstocks.

But the loss of chemical production ability isn't the chief fear of those who say that oil production has nowhere to go but down. Rather, the inability to create nitrogen fertilizer for industrial farming is what they worry about most.

First, a quick note: as we've explored at length, industrial farms are not the only way or the best way to provide food for the world's citizens. There are healthier, more environmentally-friendly ways of growing food not requiring masses of petroleum fertilizer or pesticides. That said, absent a global revolution in thinking, industrial food production will likely continue for quite a few more years, and industrial agriculture techniques may turn out to be necessary to maintain food production during serious climate disruption.

So what's the biomass-based alternative to using petroleum for fertilizer?


Engineer-Poet at the Ergosphere breaks it down. Algae can be used to produce hydrogen, and hydrogen can be used to "fix" nitrogen. With the hydrogen production operating a mere 1% efficiency, a hectare of hydrogen-generating algae could produce the nitrate to fertilize around 20 hectares of agricultural production. That same hectare could fertilize 200 hectares if H2 generation efficiency is brought up to the 10% thought possible.


If 10% efficiency can be achieved, the hydrogen production goes up to 38 tons/ha/year (1.55 MWh/ha/yr) and it can become the basis of a general energy business. If crop wastes such as corn stover and wheat/rice straw are used as carbon inputs and have a general chemical formula of (CH2O)n, addition of H2 is all that is necessary to produce methanol (CH3OH). If the process can use the inputs with 100% conversion efficiency, 2 grams of hydrogen plus 30 grams of carbohydrate yields 32 grams methanol; 38 tons of hydrogen becomes 608 tons of methanol (about 203,000 gallons, holding the energy equivalent of 122,000 gallons of gasoline). At this level of production, inputs of crop waste are probably the limiting factor; long before this level was reached, the fuel production would satisfy all needs for cultivation.

Conclusion: it is not only possible to generate all required nitrogen fertilizer from solar energy using known processes or slight improvements, at the limit they could lead to large-scale production of biofuels from crop wastes. All it requires is hydrogen.

Algae farms may not be quite a sexy as fields of corn or soy, but may well be far more important.

The use of biomass to replicate the services provided by petroleum walks a fine line. As noted, these replacement processes allow the continued use and/or production of aspects of modern life that could by no means be considered sustainable. It's possible that a Peak Oil crisis could drive the adoption of far more sustainable methods and materials; unfortunately, it's also possible that a peak oil crisis could drive the onset of greater global conflicts, starvation and chaos.

I don't look at these developments as being permanent substitutes for sustainability, I see them as transition technologies. Work on improving the efficiency and utility of the more sustainable practices will continue, and -- as I fully expect -- when they are recognized as being demonstrably better, large-scale adoption will follow. A world of Peak Oil crisis and conflict is far less likely to let us get to that point.

Wednesday, June 22, 2005

Austrailia's Celebrity Scientist Admits To Peak Oil

Eclipse Now! Peak Oil Home Page

Australia’s celebrity scientist "Dr Karl" admits to peak oil on our national youth radio station, JJJ

Click here to download mp3 and listen to the interview

This podcast radio interview is a great introduction to peak oil from a very cool station.

Steve Cannane interviews James Howard Kunstler, author of "The Long Emergency: Surviving the End of the Oil Age, Climate Change, and Other Converging Catastrophes of the Twenty-first Century". Also present were Sonia Shah, Dr Karl, and Andrew McNamara — a Queensland Labor party member on peak oil.

A tongue firmly in cheek Steve Cannane reply to Kunster's book title...
“...sounds like we should all slash our wrists — or just party hard...”

Fueling Fears

Philadelphia Inquirer

By Harold Brubaker

High crude oil prices - near $60 a barrel this week - are fueling debate about how much of nature's economic elixir is left on the planet.

A growing chorus is predicting that oil production will soon begin a gradual decline, with the potential to wreak havoc on oil-dependent economies.

Kenneth S. Deffeyes, a retired Princeton University geology professor, is among the "peak oil" prognosticators arguing that mankind is heading into the downside of the age of oil.

Peak-oil proponents are not saying that the Earth's store of crude is nearly gone. Rather, they say it is nearly half gone, and daily production will begin slowing - while growth in demand continues, according to Deffeyes.

"I'm very concerned about the five-year time scale. There's not much we can expand rapidly on a five-year time scale" to make up for a shortfall in oil, he said in a recent interview at his home in Princeton.

But Cambridge Energy Research Associates asserted just the opposite yesterday in a report predicting that oil production capacity could exceed demand by more than six million barrels per day by the end of this decade - far above the current margin of one million barrels per day.

That projected capacity increase could push prices below $40 a barrel again by 2007 or 2008, the Cambridge, Mass., firm said.

Cambridge Energy expects major new contributions from Russia, the Caspian Sea region, and West Africa. Unconventional crudes, such as extra-heavy oil, oil from wells drilled below more than 2,500 feet of seawater, and other liquid hydrocarbons will increase to 30 percent of total production capacity in 2010, up from 22 percent now, the company said.

Cambridge Energy predicted that much of the increase in supply will be light, sweet crude oil - good news for Philadelphia-based Sunoco Inc., whose refineries are designed to process that type of oil.

Peter M. Jackson, Cambridge Energy's director of oil industry activity, acknowledged during a teleconference with reporters yesterday that last year's discovery of 13 billion barrels of new oil worldwide did not nearly offset the 30.7 billion barrels pumped out of the ground. That propels the belief that rapid depletion is at hand.

But that is not the case, Jackson said, because upgrades and expansions of existing fields have made them capable of producing more oil than was previously thought possible.

Cambridge Energy does not see a peak in overall production until around the middle of the century. Even then, it will be an "undulating plateau rather than a peak," he said.

Deffeyes, however, does not buy predictions that production can keep increasing for decades, especially since in 1986 the world began burning more oil annually than it was finding.

Although oil production has continued increasing worldwide, discovery of new oil reserves has been in a relentless decline for 40 years.

"There are a few juicy places," said Deffeyes, who worked for Shell Oil in the 1950s before leaving for an academic career. Among those places are Russia, where political instability is a serious concern, and Iraq, which is the only Middle Eastern country that has not been thoroughly explored, Deffeyes said.

To move the peak of oil production a few decades forward, "they've got to find another Middle East, plus another North Sea on top of that," Deffeyes said.

Deffeyes, whose book Beyond Oil - The View From Hubbert's Peak was published this year, based his prediction that global oil production would peak late this year on the methodology of M. King Hubbert, a geologist with Shell Oil.

Hubbert correctly predicted in 1956 that oil production in the continental United States would peak around 1970. His notion was that adding all the production from oil fields in a large region, such as the lower 48 states, would generate a bell curve showing a peak and subsequent decline.

Production climbed again in the United States after Prudhoe Bay in Alaska came online in 1976, but it never reclaimed previous heights, Deffeyes said.

In Beyond Oil, Deffeyes listed things consumers should expect during the next five years. They included:

A growing need to avoid long daily automobile commutes.

A new appreciation in cold climates for winter vegetables that do not need to be transported thousands of miles.

A scramble for high-efficiency diesel engines.

If his prediction turns out to be correct, Deffeyes still is not predicting a long-term apocalypse. "On a 20-year time scale," he said, "we'll figure out a lot of things."

Learning About Crude Oil

by George Crispin

My education on the subject of crude oil continues, but not without difficulty. Academic writers, who are notorious for making papers hard to follow, have nothing on what writers in the oil industry routinely turn out.

Many years ago I recall my company getting a successful cost information program functional, only to discover that the last thing management wanted was to know what things were costing. Their thinking went something like this. If we have accurate reporting on this job, which is going to be quite profitable (and it was), there is no telling who will learn about it, to our detriment. Whatever you think of this management technique, that particular organization (it was a joint venture) succeeded in losing in a few years most of the profit it had made since it began.

Something similar goes on in the business of producing and marketing petroleum. Many people do not want the world to know the facts; there are too many secrets to be kept, axes to be ground, reputations to be maintained, and bureaucracies, government and corporate, to be pacified. Then there is the propensity of so many to actually look forward to the disaster they imagine will occur when the world "runs out of oil." And one must suspect that the oil companies believe convincing people we have a problem is a great way to persuade them to accept high gasoline prices.

One particular feeble discussion suggests that the deep drilling required to tap abiotic oil fields, as the Russians are doing, is too expensive. The only solution is for us to take whatever oil fields we feel the need for. Those making this argument appear to assume that making war, supporting fleets at sea and in the air and killing people is done at no cost. Their thinking must be that if we keep the populace in a state of nervousness over the possibility of running out, if we can forecast food shortages and starvation, we have a great opportunity to establish big governments with armies and lots of cushy government jobs, as we resolve the problems of the world, real or imagined, all caused by a lack of that oil. There is now ample evidence that oil exists or is being produced in the earth’s mantle to migrate up to the crust where we can get at it. There is ample evidence that crude oil does not originate from biologic life and is not a fossil fuel like coal. And there is ample evidence that there is lot of it.

The earth’s crust averages some 9 miles in thickness; under the oceans it is much thinner averaging about 3 miles. Where the upward movement is too slow to satisfy us, deep drilling is the answer and Russia has become one of the world’s top producers using this technology. In 1951 Russian scientists formalized the Russian Ukrainian deep abiotic theory of the origin of oil. It suggests that crude oil either consists of primordial compounds or evolves from primordial elements located below the crust of the earth. Having been debated fiercely for 20 years in peer-reviewed papers (all in Russian of course) by Russian scientists it is not longer a theory. Using it Russian drillers have located deep oil, developed deep wells and are marketing abiotic oil to the world today, from a seemingly limitless supply.

The refusal of the oil industry in the West to abandon their scientifically unproven theory of a biologic origin for oil for one that continues to find oil is a serious mistake. Let’s hope the industry wakes up.

The U.S. can be energy self-sufficient within a decade

Marshall Brain's Blog
(Click here to view original with more active links)

The U.S. can be energy self-sufficient within a decade
Two weeks ago I ran three articles here that talked about "peak oil":

* Peak oil will be a non-event (this one generated a tsunami of comments)
* Follow-up on Peak Oil
* Cheap electric cars from China

The gist of these articles is simple: As oil gets more expensive, we will replace it with less-expensive technologies in a completely natural way. Therefore, peak oil will be a non-event.

Then I started collecting a large quantity of material showing all of the different energy technologies that are currently being researched and deployed. You can find the material here:

AltEng -- The sources of energy that will replace oil

What you can see is that the United States can be completely energy self-sufficient within a decade. We simply need to make the decision to do it. We do not have to create any new technological magic. Here is one example that uses some of the simplest technology possible.

The technology is called CSP (Concentrating Solar Power). And this technology is incredibly simple -- you use mirrors to reflect lots of sunlight at a single focal point. The mirrors can be arranged in a trough configuration, a dish configuration or a tower configuration. At the focal point, you use the heat of the sunlight to create steam (and use the steam to drive a steam turbine and electrical generator), or you use a Stirling engine to drive an electrical generator. This page provides a very nice, easy-to-understand overview of the concepts:

CSP Technologies Overview

There are two great quotes in this article:

* "Enough electric power for the entire country could be generated by covering about 9 percent of Nevada—a plot of land 100 miles on a side—with parabolic trough systems." You could build a couple more plants of the same size to generate hydrogen, and the United States would be completely energy self-sufficient. This is not advanced technology -- it is a bunch of mirrors.

With two or three solar energy plants of this size, America becomes completely energy self-sufficient. And our carbon output would drop very close to zero.

* "Concentrating solar power technologies currently offer the lowest-cost solar electricity for large-scale power generation (10 megawatt-electric and above). Current technologies cost $2–$3 per watt. This results in a cost of solar power of 9���–12��� per kilowatt-hour... Future advances are expected to allow solar power to be generated for 4���–5��� per kilowatt-hour in the next few decades."

Clearly, if we make the decision to do so and put our minds to it, the United States can become energy self-sufficent in a decade or so. This problem is much, much simpler than putting a man on the moon, and we did that in about the same amount of time. The fact that we are not actively doing this already is sad.

In all liklihood we will never make that decision. What will happen instead is that normal economic forces will cause the transition to happen in a natural way. The cost of electricity and gasoline will rise as oil gets more expensive. The cost of solar electricity, nuclear power, wind energy, etc. will fall as technology advances and economies of scale kick in. There will come a point where companies find it quite profitable to build power plants using these other technologies rather than fossil fuels. So they will. Oil will come to play less and less of a role in our economy, and peak oil will be a non-event.

Human consumption straining earth's resources


PROFESSOR Gerald Lalor, director general of the International Centre for Environment & Nuclear Sciences at the University of the West Indies, Mona, says human demands are straining the earth's resources. Agriculture, adds the scientist, is a main driver of environmental damage.

"The present demands on our planet are staggering in scale," said Lalor. Agriculture for instance already accounts for 70 per cent of our fresh water use and nearly 40 per cent of land uses are food demands. this is closely linked to environmental damage."

Lalor was delivering the keynote address last week at the opening ceremony of the two-day conference on the environment.

The second national conference on the environment hosted by the United Nations Environmental Program (UNEP) and the Jamaica Institute of Environmental Professionals was held yesterday at the Jamaica Pegasus hotel under the theme: "Sustainable development - myths and realities".

One example, he said, was that the worldwide cattle population generated 94 million tons of methane gas annually - which is 20 per cent more damaging as a greenhouse gas than carbon dioxide.

Noting the correlation between population growth worldwide, and the earth's finite resources, the nuclear scientist said that while the world's poor sought valiantly to adopt the lifestyle of the average US citizen, it is unknown if the earth could sustain the demands.

"If every resident of China were to acquire the average standard of living of the US, we would need another four earths," Lalor said.

Jamaica contributes very little to global degradation, but, said Lalor, "there is much to do right here," to correct environmental damage - for example, the resuscitation the dying corals, preservation of the biodiversity, reduction of the smog which suffuses Kingston, restoring the Kingston harbour, rehabilitation of mined out lands, halting the depletion of the soil's fertility and eliminating the potential threats to children exposed to lead batteries.

These, he said, are problems "crying out for attention."
A fundamental element of the sustainability of the environment is energy generation and while several alternatives are being explored, Lalor implied that it was a myth to hope that these alternative energies could be produced on a global scale.

"The supply situation with oil is fraught with problems, and fossil fuel combustion at projected levels seem pretty certain to lead to global warming," said the scientist.

"Worldwide there will be increased usage of so-called renewables based on biomass, solar, hydro, wind, wave among others, which, generally, are more environmentally benign than the combustibles, but are unlikely to fill the global demand for energy during the present century."

Lalor noted that such considerations are partly the reason for the resurgence of interest in nuclear power and despite the freeze on new construction in the West several countries in Europe and Asia supplement energy needs with nuclear power.

For example, France generates 79 per cent of its electricity with nuclear power; Belgium 60 per cent; Sweden 42 per cent; Switzerland 39 per cent; Spain 37 per cent, the United Kingston 21 per cent; and the United States 20 per cent.

He stated emphatically that nuclear energy was the only feasible global alternative to oil based on the increasing cost of oil but small nations like Jamaica should be in a watch and wait mode.

One energy forecast: Oil supplies grow

By Ron Scherer 

According to the Association for the Study of Peak Oil & Gas, the end is near - when the earth's oil reserves start to run dry and scarce petroleum will go to the highest bidder. Seers have written books detailing that time, and websites such as forecast a steady rise in prices - such as Tuesday's oil price of more than $59 a barrel.

Not so fast, maintains a new report issued Tuesday by the widely respected group Cambridge Energy Research Associates (CERA). Instead of the wells running dry, CERA says petroleum supplies will be expanding faster than demand over the next five years, according to an analysis oil field by oil field. In good news for the SUV set, the new oil will be light, sweet crude - ideal for making gasoline. And since supply will grow, CERA forecasts prices will fall, possibly below $40 a barrel.

"We expect supply to outpace demand growth in the next few years, which would take the pressure off prices around 2007-2008 or thereafter and even lead to a period of price weakness," says Peter Jackson, a coauthor of the report.

Kjell Aleklett, a professor of physics in Sweden and president of the Association for the Study of Peak Oil & Gas, says the CERA report is overly optimistic. In addition, he says, one of his students looked at a draft of the report and concluded that CERA double-counted. "I'm not worried about this report," he said from a cellphone in Madrid. "Over the next several years, they will find new oil fields, but then it will be hard to do it."

Still, CERA maintains that higher prices are encouraging production and that technology is helping to capture oil from older fields. It foresees non-OPEC production expanding rapidly through the rest of the decade, particularly as new supplies come onstream from Russia, the Caspian, Brazil, Angola, and Canada.

Much of the production increase is already starting to happen as oil-rich nations begin to dig deeper and produce faster. According to the report, there are approximately 20 to 30 new major projects (producing more than 75,000 barrels per day) coming onstream every year until 2010. These will add 3 million to 4 million barrels of oil per day each year.

Over the next five years, there will be 10 million barrels per day of new light or medium crude and 3 million barrels per day of new heavy crude. Altogether, supply will exceed demand by 6 million to 7.5 million barrels per day later in the decade, according to CERA.

While many of the oil-depletion theories claim that Saudi production will falter, CERA predicts that the oil-rich nation will expand its production by as much as 2 million barrels of oil per day by 2010. In fact, the CERA analysis concludes that OPEC production will expand the fastest - to 45.6 million barrels per day, up from 36.8 million last year.

But because of political uncertainty, it has shaved its estimates for oil production from Russia. Any decline of Russian crude production would also be mirrored by a continued decline in production from other non-OPEC countries, such as the United States.

CERA does not foresee an actual "peak" in oil production. Instead, with huge projects coming onstream on a regular basis, it predicts an "undulating plateau" in terms of supply and demand for decades. An "inflexion" point will come in the third or fourth decade of the century, according to CERA.

"There is no indication to suggest peak oil is imminent," says Daniel Yergin, CERA chairman and author of several books on petroleum.

The main risks to its forecast, says Mr. Yergin, are political and operating changes that could delay expansion. If that happens, CERA predicts that oil production will increase by only 11.5 million barrels of oil per day between 2004 and 2010.

Tuesday, June 21, 2005

Challenges in a World of Oil Scarcity: The Coming Saudi Oil Crisis


As oil becomes a scarce resource, its use will have to be rationed in one way or another. There are ways to allocate oil use and direct it to its most valuable applications. But achieving such a rational plan will require a carefully orchestrated, global, country-by-country effort. Left unattended, this process could quickly evolve into genuine chaos. The global economy can function after oil supplies peak, but not in the same manner in which we live today.

Once oil supply peaks, the world will be forced to create ways to substantially conserve our oil and other energy sources. This shift should force a rapid rethinking of the notion that transporting people and products anywhere in the world is an almost incidental cost of doing business. "Transportation" turns out to be the biggest single user of oil, and we need to begin finding ways to minimize everyone's transportation needs and make the use of transportation fuel as efficient as possible. Today, the most wasteful use of transportation fuel is probably traffic congestion. A world beyond Peak Oil will be forced to solve this problem, too. Whether its solution is living closer to one's work or using more mass transportation, both become viable ways to address traffic congestion and use oil more efficiently as prices rise. Simply building additional miles of wider and wider roads no longer works. Even a new fleet of more fuel-efficient vehicles will take too long to implement and may still use too much oil. If we do not alter our transportation systems as a matter of policy and public planning, the inexorable operation of pricing mechanisms will do it for us. At some price for gasoline, traffic congestion will diminish.

There is no question that a world of increasingly scarce oil will foster a growing competition among energy-consuming countries. As the reality of declining oil supply becomes better understood, this country-by-country competition could evolve either into a manageable process (like the economic competition that has existed for decades among the various OECD countries) or an aggressive free-for-all that triggers new wars. If the problem is misunderstood or left unaddressed, war could easily prevail over peaceful competition. Securing adequate oil supplies was, after all, an important element in all the major wars of the twentieth century and in the United States' two most recent interventions in the Middle East. If the magnitude of the problem is fully understood and the risks of a laissez-faire approach are appreciated, all nations should be able to recognize the necessity of working out comprehensive ways to allocate an increasingly scarce supply of oil among the world's many deserving countries.

The competition for oil supplies is not waiting for the day when oil production peaks and begins to decline. Scarcity is not simply a function only of production and supply; it also results from increasing demand. And that is the situation we are facing today. More people in more places want a share of the world's petroleum resources. Rising demand over the past several years has altered the previous market balance and quickly turned oil from a relatively abundant to a far scarcer commodity. The most aggressive new entrants into the international petroleum markets are China and India, the world's two most populous nations with two of the fastest growing economies. They will, within the lifetime of a majority of Americans and Europeans alive today, become the two largest national economies in the world by most measures, although they will not be the wealthiest.

The developing oil needs of China and India are huge, and their leaders seem now to be truly understanding the issue, perhaps far better than the leadership in many already prosperous countries. They are now using every means traditionally employed by Western nations and their oil companies, short of military force, to secure sources of supply. These means include diplomatic relations and foreign aid, direct investment, bilateral agreements, technology assistance and transfer, and the exploitation of frictions in the traditional relationships between Western nations and non-Western oil producers. China has forged agreements with three of the largest Petroleum exporters -- Saudi Arabia, Iran, and Venezuela -- and with several others. Not surprisingly, several of these exporting countries are currently in disputes with the United States. These countries may not be above using their increased market leverage in ways that will damage U.S. interests.

The growth in China's and India's need for oil has now become very visible. Less visible is the meager oil use by many other countries that now also aspire to be like "us." In a world where oil is limited, it is vital that a truly global International Energy Agency (IEA) begin to embrace the needs of all the world's energy users and not simply view its role as that of the energy watchdog for the prosperous energy consumers.

I happen to think the world can make the transition into what we might call the post-Saudi oil era in some very rational ways that will limit economic disruption. As a perpetual optimist, I believe the world still works beyond Peak Oil. While oil prices in this new world will obviously rise, this rise can be a blessing, not a curse. Far higher oil prices make all other forms of energy more competitive and spur on energy research programs that might discover some real long-term fixes.

Higher oil prices will also trigger a massive influx of money to all oil-exporting nations, even as their reserves and daily outputs shrink. With proper guidance, and based on the grim reality that this great flow of fluids for these oil countries is essentially a "last call" instead of just another boom that will be followed by another bust, oil-producing countries can make the most of the revenues that higher oil prices create.

It is imperative for countries like Saudi Arabia and the Middle East producers in general to wisely invest their pending windfall profits toward creating modern societies that work beyond oil. If such plans are enacted, their unforeseen benefits could turn into a surprising global miracle. The time for using high oil prices for guns, palaces, and Swiss bank accounts is over. This money now needs to be used to create the basis for more abundant life in these countries after Peak Oil.

Do the math to understand how powerful this spending boom could be. OPEC, as a group of countries, now has about 600 million people. By 2025 or 2030, the OPEC population could easily exceed one billion people. If future oil prices were to remain as low for the next 20 years as they have been over the last 10 years, it would almost ensure an ever-increasing gap between vast wealth for the ruling elites in these important countries and increasing poverty for the masses. Such a model is unsustainable. Social chaos, increasingly violent terrorism, and political or military revolutions would ultimately become "normal events" throughout all OPEC countries.

If the process is managed in a rational manner, an era of high oil prices can create the necessary revenue to begin building a genuine middle class in most OPEC nations. This process would, in turn, unleash a buying spree for OECD goods and services. The growth in demand for such goods that this new middle-class OPEC society would want might make even the economic miracle unleashed when the Marshall Plan rebuilt Europe appear modest in comparison. It would certainly overwhelm the economic miracle of the 1980s and 1990s when the Asian tigers finally rose to prominence.

A world that learns to live with a dwindling oil supply will also be forced to control the emissions that energy use creates in an entirely different way than anyone envisioned when worries of global warming first began to surface. A continuation of urban sprawl would become an intolerable trend as the transportation that supports it becomes too costly. Fortunately, the world has already created the necessary tools to allow many highly productive people to stay and work at or closer to home. How odd it would be if the Internet became best known as a great tool to help pave the way for a world that uses less oil.

The biggest danger the world faces, if my thesis about Saudi Arabia's oil is correct, is that no one will begin preparing Plan B. As far as I know, there is not a single contingency plan in place or currently being written by any of the think tanks of the world that sets out a model illustrating how the world can continue to function smoothly once it is clear that Saudi Arabian oil has peaked. In a nutshell, it is this total lack of any "alternative scenario thinking" that makes this unavoidable event so alarming.

Matthew R. Simmons is Chairman and Chief Executive Officer of Simmons & Company International, a Houston-based investment bank that specializes in the energy industry. Mr. Simmons serves on the boards of Brown-Forman Corporation and The Atlantic Council of the United States. He is also a member of the National Petroleum Council on Foreign Relations. He has an MBA from Harvard University. He is the author of Twilight in the Desert: the Coming Saudi Oil Shock and the World Economy, from which this essay has been excerpted.