Peak Oil News: 05/01/2006 - 06/01/2006

Wednesday, May 31, 2006

The day after peak oil

Creative Loafing

Will we die in our cars or retool our communities?

By John F. Sugg

"We have a great infrastructure here. It needs dusting off and a new direction." – Gwinnett Place Mall's Joe Allen

You know that place alongside I-85? Or was it I-75? Maybe State Road 400? Could have been I-20.

Well, it doesn't really matter what stretch of concrete because the environs are all the same. Mass-produced cul-de-sac subdivisions are surrounded by cookie-cutter malls, all laced together with endless ribbons of car-clogged roadways.

Sprawl. We know that. Been there, got the "sweltering on the expressway" T-shirt. But to understand what sprawl really means -- for your future -- we need to connect a few dots.

We have sprawl because ... well, because of gasoline. The internal combustion engine created in the last century this phenomenon called the suburb. Hundreds of millions of Americans suffer from the mass delusion that they live (sorta) in the "country" because they have a 3,000-square-foot, incredibly-cheap-construction manse and bit of grass, and their subdivision boasts a name like Fox Run or Oak Creek. Those not intoxicated with gasoline fumes have noticed that such names are historical markers recording what once was on the land before it was bulldozed.

As industrial and commercial urban centers became noisome and noxious, the car allowed people to move into the burbs. The commuter was born (and is slowly dying), with the interstate as an umbilical cord.

So, if a gasoline glut giveth sprawl, will paltry petroleum production taketh it away?

You haven't heard a lot in the mainstream press about something called "peak oil." The Atlanta Daily Newspaper of Declining Circulation -- whose marketing and news orthodoxy is that sprawl is splendid -- has mentioned the term only four times. Ever. Those items include one letter and, oh, one column from the pro-sprawl, pro-more-roads Georgia Public Policy Foundation. That column labels peak oil as a "belief" that's foisted on the public by "snake oil" salesmen.

"That's really stupid," says Richard Heinberg, author of two books on peak oil, and a guy who practices what he preaches. He's converted his California suburban home into a mini-farm where he raises food on once-manicured lawns. Through solar panels, he has cut his energy bill by 80 percent.

"The public policies that encourage sprawl are insane," Heinberg says. "Peak oil isn't a hypothesis. It's an observation. We're writing history, not predictions. And policies that don't recognize that are creating a tragedy that our children and grandchildren will pay for."

Sometime in the next 30 years, the world will have exhausted oil supplies to the point where production will rapidly diminish. A 2005 U.S. government study (clearly ignored by Bush & Cheney Inc.) called the Hirsch Report concluded that peaking "without timely mitigation" will result in "unprecedented" social, economic and political chaos.

How do you mitigate the affects of peak oil? As the Hirsch Report underscores, the old blather about "market forces" doesn't apply. True, rising prices will eventually prompt conservation and promote the search for alternative energy. But that won't happen soon enough to skirt disaster. The study found it will take 20 years to recalibrate American society for a future of diminishing oil. If we've already hit peak oil, which might be the case, we're facing two decades of horrendous crisis. Or, if the peak is still 20 years off, we'd better start preparing today.

Many cities -- Portland, Ore., San Francisco, Bloomington, Ind. -- have passed peak oil resolutions that call for sensible public policies.

In Georgia, meanwhile, our Republican leaders are headed in the opposite direction. Last legislative session, they slipped a transit-killing poison pill into the state budget. And rather than vetoing that anti-commuter provision, Gov. Sonny Perdue is backing a new wave of road building funded by "public-private partnerships," which means the public will bleed billions and "private" pals of legislators will cart away the money.

Jim Kuntsler, a peak oil author who lives in New York, says Georgia's policies are creating "a public realm that has been reduced and impoverished into a universal automobile slum."

There are smart people who live here, and they're thinking about the problem. Joe Allen heads a community improvement district at the aging Gwinnett Place Mall. He's picked up on the themes of transforming sprawl into new cities, places where people can work, live and play with minimal reliance on cars.

"We have a great infrastructure here," Allen says. "It needs dusting off and a new direction. In 1984, the mall forever changed the face of the area. New concepts that transform this into an urban center will again change Gwinnett for another 20 or 40 years."

Gwinnett County's planning director, Steve Logan, quips, "I've long seen all of those huge parking lots as a way to land-bank property for future use. We'll see sprawl areas congeal and intensify. Five-dollar-a-gallon gas will make it happen a lot faster."

The idea is to carve out scores of cities in metro areas -- real centers of commerce and housing. Instead of 90 minutes in the car, you spend nine minutes strolling to your office. Or, if you commute, it's a couple of miles on a trolley or train, not 30 miles in the SUV.

What's at stake is the future. Good public policy is the key. Kunstler calls for programs to rebuild America's train system. Others favor jacking up gas taxes and using the money for transit -- a good idea if provisions are made so that the burden won't disproportionately fall on the poor.

In the near term, reconfiguring suburbia into new cities -- like the plans for Gwinnett Place -- could transform sprawl into communities. While we're at it, we should retool the nation's agriculture and retailing -- returning to local farms and neighborhood shopping. It's a better way to live -- and we could escape the worst of the day after peak oil.

Are we building highways to oblivion?

Rock River Times

By Joe Baker

Most Americans remain in denial or only somewhat aware of the reality of peak oil, climate change and the fiction of unlimited growth. Government is doing little to dispel those notions.

While the fact of finite resources is immutable, the politicians plan to build more and bigger roads, pledging hundreds of billions of dollars to expanding the interstate highway network.

These massive road plans assume unlimited cheap oil, a condition that is already past. That is a trillion-dollar error that can co-opt the future of our post-carbon society.

The public is focused on and concerned about $3-a-gallon gasoline, but that fixation has not resulted in any significant change in public policy. There is no political pressure to tax windfall profits, create inter-city rail networks, install solar panels on homes or to take other steps to alleviate the constriction of supplies of fossil fuels.

Instead, we are promoting more suburban sprawl, more roads and more overdevelopment all dependent on cheap gasoline. An effective response to dwindling supplies of oil will take cooperative efforts from the local level all the way to the global level.

What if someone suggested you dig up that prize bluegrass lawn and plant lettuce, radishes, onions and other food crops? How about if government decided to plow up the golf courses to plant corn and other crops?

That’s not as nutty as it sounds. Food will be one of the primary issues of the peak oil period, particularly for large cities that are some distance from farmlands. In the not-too-distant future, those big trucks may not be rolling in at your local supermarket, and the shelves may be rather bare.

We need a new transportation policy. Highway construction, which is a key part of our car culture economy, links real estate speculators, developers, road construction firms, sand and gravel mining companies, and lending institutions. Not surprisingly, in most places, these people are the bankrollers of local politicians, who make the zoning and planning decisions about building new highways and the associated development.

Considering the many campaign donations by developers, take a look at the local County Board. How many members are in the real estate or legal professions or have ties to developers?

Witness the strong political pressure to extend Perryville Road. Drive those cars.

Witness the Sunil Puri/Dyn Cannell, LLC’s request for a special-use permit to pursue a 123-acre subdivision in Rockton township—right next to the Nygren Wetland Preserve (See related stories on page A1, A5 and B5). Beloit dumped sludge containing heavy metals in the 1980s on the very land for this “Planned Community Development.” Drive those cars.

Witness the huge subdivision that is being foisted on the Village of Caledonia under questionable circumstances. Drive those cars.

Witness the costs and taxes Loves Park is trying to foist upon Rockford and farmers for the extension of Riverside Boulevard. Drive those cars.

Witness what happened to the Ditzlers, their wetlands and a Native American historical site for the Springfield-Harrison extension at the hands of the County Board. Drive those cars.

In the 1950s, the country built the interstate highway system, inspired by Hitler’s Autobahn network in Nazi Germany. That development largely happened because of a conspiracy among General Motors, Firestone Tire and Standard Oil to eradicate public transit systems in more than 100 cities. If you doubt that, go on the Internet and punch in “streetcar conspiracy” and see what comes up. There are numerous articles documenting these events.

Now, we are trying to rectify that mistake. We are spending billions on new light rail and streetcar networks in cities across the country. Rockford and Winnebago County are trying to obtain rail service for this area. Had we left the rails in place, we would not be as dependent on cars and trucks today, and dealing with peak oil would be much easier. Rail transport is much more fuel efficient than automobiles.

The interstate highways soon created huge areas of auto-dependent suburbs, which ringed the inner cities with development, leaving the core of the city largely neglected. In a speech in 1968, Martin Luther King Jr. said: “These 40 million [poor] people are invisible because America is so affluent, so rich; because our expressways carry us away from the ghetto, we don’t see the poor.”

A number of cities, including Chicago, have had campaigns to stop the construction of highways. Freeway opposition was common in the 1960s, and few new roadways were proposed.

But a resurgence of such plans occurred in the 1990s, with several upgrades of the interstate system, proposed to aid in implementing the North American Free Trade Agreement (NAFTA). These plans called for new and expanded north-south truck routes to expedite traffic between Canada and Mexico, plus many other projects to benefit the highway lobby, big companies like Wal-Mart, and ever-growing suburban sprawl. That was President George H. Bush’s highway law.

Mark Rabinowitz of, said laws were added to expand the program during the Bill Clinton administration and now in the second George W. Bush administration. The public, he said, has paid little attention, even the very groups that do not want more roads.

He notes many environmental groups were fooled into focusing on proposed bike paths to accompany these highways while ignoring the majority of the funding was going for the roads. A Washington, D.C.-area bicycle group, for example, is urging its members to demand inclusion of a bicycle path with the $3 billion Inter County Connector superhighway in Maryland. This flies in the face of other environmental groups there who have spent years fighting this highly destructive project.

Hopefully, the Larry Morrissey administration’s good move of planning to connect the area’s disconnected bike paths and putting bike lanes on some streets will not take the same route as Maryland’s debacle.

In Portland, Ore. Interstate 84 carries six lanes of freeway traffic plus a light rail line. The traffic on the roadway, Rabinowitz said, is helping to melt the polar ice caps. but commuters have transportation options. The electricity to run the train is provided by a mix of coal, natural gas, hydropower, nuclear power and wind.

We need a strong environmental challenge to centralized energy conglomerates’ plans to revive nuclear power, “clean” coal, oil drilling in wilderness areas and turning farmland and forests into production of biofuels. These things are unlikely to stop until we explode the myth that we can have unlimited, endless growth in a finite world.

Sustainability refers to practices that can be continued generation after generation. We have a long way to go. Walk. Bike. Buy hybrid and E-85 vehicles. Live close to work or in the central city, and fight development that robs us of our nature and farmland. Don’t drive those cars.

Friday, May 26, 2006

A Personal Peak Oil Discovery Process, Part I

Raise the Hammer

A retired nuclear physicist traces his discovery of peak oil theory.

By John Rawlins

I recall reading a Scientific American article in 1998 about world oil supply, titled The End of Cheap Oil. Colin Campbell and Jean Laherr�re predicted that the world oil extraction rate would increase until around 2005-2010, then peak and quickly enter decline, with decline rates of a few percent per year.

That seemed interesting but not all that worrying to a 58 year old semi-retired nuclear physicist teaching astronomy and physics in a community college in northwest Washington state. I posted their graphs on my office door and occasionally discussed the topic with students, but I didn't really get it. Just having less gasoline for transportation seemed the least of our worries.

I basically did nothing to begin getting ready for the cursed event until more recently. Now, in May 2006, world oil extraction seems to be peaking, gasoline prices are rising even before the summer driving season, the next hurricane season starts soon, geopolitical nightmares are developing in many oil-producing regions, and my wife and I feel unprepared for (and worried about) collapse.

In my previous career with Westinghouse Hanford Company in eastern Washington, I spent a few very frustrating years in the early 1990s working on US energy policy issues. In the end I was convinced that our democratic form of government is totally unable to formulate a wise, technically coherent, long-lasting national energy policy.

Fifteen years later, my worst fears are being realized, and my faith in any government "solution" is at absolute zero for this country. We consume far too much energy, and two-thirds of what we consume depends on fuels that are no longer reliable: oil and natural gas. Of these, oil is the most fundamental: almost everything that moves uses an oil derivative for fuel.

In the fall of 2003 our investment advisor noted that our portfolio was heavy in big oil stocks and she suggested we review our situation and think about changing our investment profile. I visited a local bookstore and browsed for recent books on oil and just happened to buy Richard Heinberg's book The Party's Over [read the RTH review].

What a surprise reading that was during the December 2003 holiday break! His thesis: world oil extraction would soon peak, and everything in our life would change because everything depends to some extent on oil. The economy would disintegrate, and chaos would likely envelop the world of all who depend on oil. Furthermore, he claimed that alternatives to oil would prove insufficient by a large margin.

In a state of semi-shock I began reading everything I could find on the subject.

First I looked for predictions about oil supply from retired, independent oil geologists and read Hubbert's Peak, a book by Ken Deffeyes, who worked with M. K. Hubbert. Hubbert developed a method for predicting oil extraction time profiles, given a few decades of extraction and discovery experience.

I then read similar treatments by other retired oil geologists and found that to first order they were in agreement with the original predictions I'd seen from Campbell and Laherr�re in 1998. My worry factor increased because I was unable to conclude how to protect our investments from this oil-depleted future.

My next major discovery was the food connection, which I suspected could be a problem. The dean at our college sent me a Harpers Magazine article by Richard Manning, titled The Oil We Eat, which argued that our food production since the green revolution has become at least 90 percent correlated with and dependent on oil and natural gas. A more detailed analysis by Dale Allen Pfeiffer titled Eating Fossil Fuels confirmed this conclusion.

Now I had to find out about the natural gas situation, another unhappy story. Soon I found a book by Julian Darley called High Noon for Natural Gas, which warned that gas extraction in North America was about to peak (it did), and that prices would rise and decline could be rapid (they did, and it is). He further warned that world extraction rates would peak soon after oil peaked. In that case increasing US imports of natural gas in the form of Liquified Natural Gas (LNG) would not be a rescue option for long, and a poor investment in any case.

About this time I began teaching an introductory physics/energy course at the college, and the course focuses on the peak oil problem and potential adaptations. During that teaching process, I became convinced that Heinberg and others were absolutely correct in asserting that no combination of alternatives to oil could come anywhere close to replacing oil at present use levels. That includes coal to liquids, natural gas, oil shale, methane hydrates, hydrogen, ethanol, bio-diesel, and nuclear/wind/solar-based electric (including compressed air) cars comparable in size with today's subcompacts.

The required adaptation time (2-3 decades) is quite simply not available. This is a scary conclusion for a technocrat like me.

Finally I found a book about investing viewed through the lens of peak oil, by Stephen and Donna Leeb, titled The Oil Factor. The Leebs reiterated all the peak oil predictions I'd stumbled on and recommended investing in a variety of stocks, mostly related to energy. We rather quickly loaded up even more heavily in energy and mining stocks and eliminated stocks from our portfolio that we thought would not do well in a world of high oil and gas prices and never-ending inflation.

With that issue finally settled we began to do things to get ready for a future of permanent shortage.
Next issue: John Rawlins begins to prepare for a world of diminishing oil resources.
John Rawlins is a retired nuclear physicist who lives in Washington with his wife (a psychologist). He teaches physics at Whatcom Community College. They live on ten acres of mostly wooded land about sixteen kilometres (ten miles) northeast of Bellingham and enjoy bicycle trips on the islands, skiing (near Mt. BGaker), sea-kayaking in the Sound, and occasionally some river kayaking. Prior to his retirement, Rawlins worked for 19 years for Westinghouse-Hanford Co, but took early retirement because he wanted his work to make a difference. Visit his website:

The Suburban Fantasy

By James Howard Kunstler

James Howard Kunstler is the author of The Long Emergency, just released in paperback by The Atlantic Monthly Press.

It’s actually kind of funny to hear Americans complain these days about the cost of gasoline and how it is affecting their lives. What did they expect after setting up an easy-motoring utopia of suburban metroplexes that make incessant driving inevitable? And how did they fail to register the basic facts of the world oil situation, which have been available to us for decades?

Those facts are as follows: oil fields follow a simple pattern of production and depletion along a bell curve. Universally, when an oil field gets close to half the amount of oil it originally possessed, production peaks and then declines. This is true for all oil fields in the aggregate, for a nation and even the world.

In the United States, oil production peaked in 1970 and has been declining ever since. We extracted about 10 million barrels a day in 1970 and just under 5 million barrels a day now. Because our consumption has only increased steadily, we’ve made up for the shortfall by importing oil from other countries.

There is now powerful evidence in the production figures worldwide that we have reached global peak oil production. The collective nations of the earth will not make up for this by importing oil from other planets.

Contrary to a faction of wishful thinkers, the earth does not have a creamy nougat center of oil. Oil fields do not replenish themselves. Also contrary to the prevailing wish, no combination of alternative fuels will allow us to keep running the interstate highway system, Wal-Mart, Walt Disney World and the other furnishings of what Dick Cheney called our “non-negotiable way of life.”

People who refuse to negotiate with the circumstances that the world throws at them automatically get assigned a new negotiating partner: reality. Reality then requires you to change your behavior, whether you like it or not. With global oil production peaking, we are now subject to rising oil prices, as markets are forced to contend with allocating a resource heading in the direction of scarcity. Oil prices are only likely to go higher—though there is apt to be a ratcheting effect as high oil prices depress economic activity and thus dampen demand for oil which will depress prices leading to increased consumption which will then kick prices back up, and so on. The prospects for more geopolitical friction over oil also self-evidently increase, as industrial nations desperately maneuver for supplies.

Mainly though, the danger lies in the resulting instability of the super-sized complex systems that we depend on daily.

Trouble with oil will spell huge problems with how we grow our food, how we conduct trade, how we move around and how we inhabit the terrain of North America. These systems are going to wobble and eventually fail unless some effort is made to reform their scale and their procedures. For example, Wal-Mart’s profit margins will disappear as higher diesel fuel prices hit its “warehouse-on-wheels.”

Now, in the face of this, you’d think that the national leadership in politics, business and science would prepare the public for substantial necessary changes in the way we do things. What we are seeing across the board, though, is merely a desperate wish to keep the cars running by any conceivable means, at all costs. That is the sole target of our focus. Our leaders don’t get it. We citizens have to make other arrangements.

We simply cannot face the fact that time has run out—that our lease is expiring—for the easy-motoring utopia. But we must. We have to live differently. We’re going to have to re-inhabit and reconstruct our civic places—especially our small towns—and we’re going to have to use the remaining rural places for growing food locally, wherever possible. Our big cities will probably contract, while they densify at their centers and along their waterfronts. Our suburbs will enter a shocking state of economic and practical failure.

We cannot imagine this scenario because we have invested so much of our collective wealth the past 50 years in the infrastructure for a way of life that simply has no future.

We’d better start paying attention to the signals that reality is sending or we will be living in a very violent, impoverished and demoralized nation. And we have to begin somewhere, which is why I suggest we start by rebuilding the national passenger railroad system. It would have a significant impact on our oil use. It would put a lot of people to work on something meaningful and beneficial to all ranks of American society. The equipment is lying out there rusting in the rain, waiting to be fixed. We don’t have to re-invent anything to do it.

The fact that we are not even talking about such solutions shows how unserious we are.

Thursday, May 25, 2006

Why Palast Is Wrong

By Greg Palast

And why the oil companies don't want you to know it

Now that I’ve convinced you that the Peak Oil crowd is crackers, let me disagree with myself. We can’t understand the new class war unless we understand why oil, a certain kind at least, has in fact “peaked.”

We’ve long jumped over Hubbert’s predicted peak and, in 2006, rolled our SUVs right through the “culmination”— that is, used the last drops of the one-and-a-quarter-trillion barrels of liquid crude the good Earth can provide according to the Hubbert jeremiad. Furthermore, “The rise in the production of power from nuclear energy for the United States” ran out long before uranium’s five-thousand-year reign, despite Hubbert’s hope and prediction. Except for a couple of unhappy decades’ experimental folly with “reactors for peace,” nuclear power is pretty much an irradiated corpse. The Shell/Hubbert predictions were dead wrong. Those are the facts.

But Hubbert was also deadly right. We are indeed running out of oil. There’s no contradiction here. We have to distinguish between an economist’s concept of “running out” and a scientist’s.

To an economist, every commodity is finite. We are running out of oil and we are running out of copper, aluminum foil, birdbaths, pickles, lumber, clean air, Frappucinos, chocolate, tongue rings, lollipops, silver, cow-shaped milk dispensers, Dylan retrospectives and sand. That is why economics is called “the dismal science.” Limits and scarcity are economists’ bread and butter. There’s a limited supply of every commodity. (And that is why love is not a commodity, as John Lennon noted, because the more you consume, the more you create.) On the other hand, unlike geologists and evangelical ministers, economists believe all commodities can be created as needed. There is an unlimited abundance of anything—oil, copper, hemorrhoid ointment, nose jobs or pornographic balloons. We can even manufacture real estate. (Think of the creation of Holland by landfill or the artificial habitation known as Los Angeles created by draining most of the Colorado River into the desert.)

The number one theorem of economics is that we are running out of everything and yet we can have as much as we want of anything. Again, there’s no contradiction. All commodities are scarce and abundant at the same time. The difference between scarcity and abundance is price. You can get anything, in any amount, if you are willing to pay any price. (See Los Angeles, above.)

Back to Hubbert. His report was used in the cynical Shell Oil game to scare us into Middle Eastern conflicts, drilling tax subsidies and nuclear power. On its face, it was stone cold manipulative nonsense, measurably so. But we are running out of a certain kind of oil nevertheless: cheap oil. That is, we are coming to the end of the stuff we can pump at a low cost, the easy oil that practically jumps out of the ground. When we bring price into the equation, Hubbert was correct—technically. Oil production did peak in the 1970s—for a certain type of oil. Re-read Hubbert. When he wrote his analysis, oil was selling below $3 a barrel, just over $20 in today’s dollars, and falling. Therefore, as prices declined further, we’d run out. We did. We’ve pretty much run out of new oil fields we can “lift” for $20 a barrel. Even the cheapest untapped fields in the world—not coincidentally in Iraq—will cost more than the “Hubbert price” to suck up and pipe out.

At low prices, there’s not much oil. As prices rise, so does supply.

It’s not magic. At $30 a barrel, Oklahoma stripper wells are worth reopening, drilling in the Gulf of Mexico becomes profitable in 3,000 feet of water, Kazakhstan’s crude is worth piping out even with the high cost of transportation and bribes.

To simplify: World oil reserves, officially measured at 1.189 trillion barrels, are probably, as one of Mr. Hubbert’s proteges stated a few years back, grossly overstated—if you assume oil selling at $10 a barrel. But kick the price up to a post-invasion $50 a barrel, and the world reserves are wildly understated.

Reserves are the measure of oil recoverable at a certain price. Raise the price, raise the reserve. Cut the price and the amount of oil in the ground drops. In other words, it’s a fool’s errand to measure the “amount of oil we have left.” It depends on the price. At $9 a barrel (the price in 1998), we’ve peaked. It’s over. All gone. But at $70 a barrel (reached in the third year of the Iraq occupation), miracles happen. Oil gushes forth like manna. How much more? If you are willing to pay $70 a barrel—and apparently you are—it’s worth it to melt sand and drain out the petroleum. Indeed, the “tar sands” of Alberta, Canada, hold 280 billion barrels of oil—for enough high octane to run our Humvees for a century. Canada’s tar oil reserves are, notably, about 15% higher than the oil reserves of Saudi Arabia. It’s not pie-in-the-sky stuff. America is dependent on foreign oil—but not from Arabia. Our biggest source of oil is Canada and half of the Canadian supply today comes from tar sands. And that will grow. How could Hubbert have missed all this oil? Answer: He didn’t. On page 20 of his famous “Peak Oil” study, he accepts that the planet can yield up 800 billion barrels of oil from tar sands equal to all the “crude” (i.e., liquid) oil we are using up.

Hubbert’s Wars

So where did Hubbert get the idea that we are running out of oil? He didn’t. He made no such prediction. Quite the opposite, he said, after predicting “the culmination of world production” by 2006, he noted,

“This does not necessarily imply that the United States or other parts of the industrial world will soon become destitute of liquid and gaseous fuels….”

So what’s going on here? This is where Hubbert brings in Canadian tar sands and heavy oils, which he correctly predicts could more than replace the cheap, easily obtainable “liquid crude” (as he calls the light stuff). And he doesn’t fail to note the location of the giant supplies of the heavy oil: “Mesopotamia” (as Iraq was then known), Brazil and Venezuela.

So what was bugging Hubbert? We have plenty of oil, it just gets heavier. He warns against drilling for it, preferring a uranium-powered future. Why? Hubbert was writing in the hottest moments of the Cold War. The U.S. overthrow of Iran’s government and the looming tension over the Suez Canal pushed America and the Soviet Union toward nuclear war—and underneath it all was the tussle over oil. Hubbert’s peak did not identify dates we’d “run out of oil” but predicted the shift in the location of oil’s main sources—to Iraq and Venezuela by the beginning of the twenty-first century, which had serious implications, he said, for “domestic purposes and national defense.” To avoid conflicts between the U.S. and Russia, he hoped the superpowers in conflict would turn inward, to uranium, a resource abundant in both nations. The value of Hubbert’s seminal “peak” paper was not in predicting the end of the oil era but in naming, with chilling accuracy, the date and location of our future wars.

Selling the Peak

So who’s selling us Peak Oil today? The operator of the supertanker Condoleezza has been running an extravagant advertising blitzkrieg to tell us: We’ve peaked! “The world consumes two barrels of oil for every barrel discovered!” That’s just the billboard. Their double-page spread in Harper’s is even more hysterical: “The fact is, the world has been finding less oil than it’s been using for twenty years now.”

Unfortunately, that “fact” isn’t a fact at all—reserves rise year after year—and those facts don’t change because Chevron paid my magazine to print it. (If Chevron is truly concerned that more oil is burnt than discovered, it might consider looking for some. The industry has cut exploration budgets from a third of production spending to an eighth. But that’s a churlish comment. Chevron is not in the business of finding oil, but finding profits.)

Ads sell. What is Chevron trying to sell us when it sells us the “peak” idea that we now use more oil than we discover? The ad says, “We need your help.” I am, I admit, flattered that a big, giant oil company would ask my assistance. What could a petroleum goliath earning $14.1 billion in a year want from me? Apparently, more money.

The new oil Chevron is finding “requires a greater investment to refine.” In other words, don’t bitch about high prices—we need your cash to mix your next fix of crude.

The “we’re running out of oil” line still has its uses. In 2005, taking advantage of oil-shortage hysteria, the Republican Congress passed an “energy” bill that was a Petroleum Club wet dream. For example, the feds can now order cities to accept liquid natural gas ports, a boon to Big Oil’s Explosions-R-Us LNG divisions. Drilling under the caribou in Alaska is likely to follow. And, in 2006, George Bush is attempting to raise nuclear power from its crypt. In his State of the Union message, our nuke-salesman-in-chief admonished Americans for our “addiction” to oil—which was a bit like the pusher-man sermonizing against the dangers of the needle. Unfortunately, some environmentalists have echoed the “peak oil” theorem in the false hope that oil companies’ raising prices will lead to conservation. Fat chance. Despite $50-a-barrel oil, we don’t see windmills on the Empire State Building. We will reduce oil dependency only when we have a government less dependent on oil money.

A closing note of caution: I fear that some may take my noting the super-abundance of oil remaining on the planet as approval for our using it. Far from it—getting off the oil habit is an urgent working- class issue. First, because cheap, good air and water are in limited supply. We can’t keep pooping combustion contaminants into the sky unless expect we expect our children to grow gills that will metabolize sulfur. There’s lots of arsenic on the planet. Don’t eat it. There’s lots of oil. Don’t burn it.

Second, massive oil use is like any other addiction—it sickens the user and only enriches the pusher; in the case of oil, that would be ExxonMobil, OPEC and Vladimir Putin. Get the petroleum needle out of our veins and we get the extra bonus of watching Citibank go through agonizing petro-dollar withdrawal.

Tuesday, May 23, 2006

New Estimate of Venezuela's Total Oil Reserves Makes It the Grandest of Grandest Prizes for US

by Stephen Lendman

I just finished reading an important new book the author's publisher sent me, which I'll shortly be reviewing for publication. The book is investigative journalist (and in his words "forensic economist") Greg Palast's latest foray into exposing the hidden from view crimes and wrongdoings of the Bush administration. I'm very familiar with Palast's important work and can only wish many others of his profession did the same sort of it he does - his job. Sadly most don't, but luckily we have some who do, and we should pay close heed to what they tell us. They're our window to the dangerous world around us, and the information they provide is our protection from it.

Palast's book is almost encyclopedic in detail, but I only want to focus here on one part of it that relates to Venezuela. In it Palast provides information showing the country may be of far greater strategic importance to the US than we likely realized. It all relates to a somewhat arcane theory called Hubbert's peak that many readers may not know about or understand well if they do. Before reading Greg's book, I knew about it but didn't understand it as well as I do now.

M. King Hubbert was a well-respected geologist of his time who on March 7, 1956 published a research paper explaining his notion of "peak oil," the amount of total reserves likely to be available, when production would peak, and when we would likely exhaust a finite supply. Ever since his report came out, it's been held up as gospel by many who follow the oil market. The essence of the Hubbert theory, whether we accept it or not, was that "peak oil" would be reached around this year. However, in fact, production rose every year since Hubbert's prediction and new discoveries of oil have so far kept pace.

A New Interpretation of "Hubbert's Peak"

M. King Hubbert may have been a fine geologist deserving of the his reputation. But today we know much more than Hubbert did in his time, and it's currently believed by some savvy analysts that we're nowhere near peaking or running out of oil. Palast sides with that view and concludes that we have enough oil left untapped to last many decades into the future. Why? Because there's oil and then there's oil - there's the easy to find and refine kind called "light sweet" like what's abundant in the Middle East, and there's also the harder to find, more expensive to refine so-called "heavy crude" and oil available from tar sands. When the latter two categories are added in, the amount of total oil available skyrockets to off-the-chart numbers.

Palast makes a key point related to the price of crude. At $10 a barrel the supply is low because only the easy to extract and refine kind are economically feasible. But at $70 a barrel it's a whole new oil market. The heavy stuff and tar sands then become economical to extract and refine, and a new far higher finite supply is realized almost magically. In short, it's just a question of supply and demand and how the price of a commodity depends on how much of it consumers want. Too little demand and the price is low, but when it's high like now and rising, then so does the price.

How This Relates to Venezuela

From what we know for sure plus what we think we may know about Venezuelan "total" oil reserves, I suggest the reader first take a seat and buckle up. In previous articles, I reported Venezuela may have reserves of about 350 billion barrels if all their known heavy and light crude are counted. That total is far more than is now officially recognized by OPEC which means unofficially the country has greater reserves than Saudi Arabia by that number alone.

But wait, there's more, a lot more. Palast reports a US Energy Department expert believes Venezuela holds 90% of the world's super-heavy tar oil reserves - an estimated total of 1,360,000,000,000 (1.36 trillion) barrels. Let me repeat that - 1.36 trillion barrels. That alone is more oil than Hubbert believed 50 years ago lay under the entire planet.

Again, back to the key issue. Whatever the true highest estimate of reserves is from all varieties of oil, those reserves are only available at a price. If it ever gets too low again, which looks unlikely, those heavy reserves and tar sands oil will again go off the charts and be uncounted. However, with today's heavy demand and the likelihood of it continuing to grow in the future, the price of oil may continue to rise and all reserves from all sources may be needed and used to supply the market.

So with a report like this coming from an apparent credible source (according to Palast) in the US Energy Department, it takes little imagination for VHeadline readers to understand more than ever that Venezuela is likely viewed by any US administration as the world's most important source of future oil supply. And to readers who understand US imperial intentions, it takes even less insight to realize the Bush administration intends to go all out to get its hands on it even if it takes a war to do it. The US goal isn't access to the oil. It's control of the supply and its price, what countries get it and how much and which ones don't, what companies profit from it, and overall how this ocean of oil can be used as a strategic resource and weapon. Beyond question, the stakes are enormous, and the battle lines are now drawn more clearly than ever.

I've reported before on VHeadline that the US is now planning a fourth attempt to oust Hugo Chavez by whatever means it has in mind. I think the wheels of its plan are now in motion, but we won't know what will unfold until the fireworks begin. With the information now available and published here, I feel more certain than ever that US instigated serious trouble is heading toward Venezuela and maybe harsher than we might expect. Venezuela's likely total oil reserves are potentially so great that the country has to be the grandest of grand prizes for the US. It's a virtual certainty the US will do anything it takes to try to seize and control it. For those of us who respect the sovereign rights of all nations and the obligation their leaders have above all else to serve the needs of their people, we can only hope Hugo Chavez is prepared for what he knows is coming and will again succeed in deterring it.

Stephen Lendman lives in Chicago and can be reached at Also visit his blog site at

No Peaking: The Hubbert Humbug

By Greg Palast

What if everything you thought you knew about Peak Oil was wrong?

Saddam had to go, we really should take a look at the theory that we went into Iraq to get its oil. A ride up “Hubbert’s Peak” will allow a clearer view of the real topic of this chapter: the geo-politics of petroleum.

On March 7, 1956, geologist M. King Hubbert presented a research paper that would, a half century later, become the New Gospel of Internet Economics, the Missing Link that would Explain It All from the September 11 attack to the invasion of Iraq.

In his 1956 paper, Hubbert wrote:

On the basis of the present estimates of the ultimate reserves of world petroleum and natural gas, it appears that the culmination of world production of these products should occur within a half a century [i.e., by 2006].

So get in your Hummer and take your last drive, Clive. Sometime during 2006, we will have used up every last drop of crude oil on the planet. We’re not talking “decline” in oil from a production “peak,” we’re talking “culmination,” completely gone, kaput, dead out of crude—and not enough natural gas left to roast a weenie. In his 1956 treatise, Hubbert wrote that Planet Earth could produce not a drop more than one and a quarter trillion barrels of crude.

We obtain a figure of about 1,250 billion barrels for the ultimate potential reserves of crude oil of the whole world. That’s the entire supply of crude that stingy Mother Nature bequeathed for human use from Adam to the end of civilization. Indeed, our oil-lusting world will have consumed, by the end of 2006, about 1.2 trillion barrels of oil. Therefore, by Hubbert’s calculation, we’re finished; maybe in the very week you read this book we’ll suck the planet dry. Then, as Porky Pig says, “That’s all, folks!”

But the pig ain’t sung yet. Planes still fly, lovers still cry and smog-o-saurus SUVs still choke the LA freeway. Why aren’t our gas tanks dry? Hubbert insisted Arabia could produce no more than 375 billion barrels of oil. Yet, Middle Eastern oil reserves remaining today total 734 billion barrels. And those are “proven” reserves—known and measured, not including the possibility of a single new oil strike or field extension. Worldwide, ready-to-go reserves total 1.189 trillion barrels—and that excludes the world’s two biggest untapped fields, which could easily double the world reserve. (One is in Iraq, the other we get to in Chapter 4 of our new book Armed Madhouse: Dispatches From the Front Lines of the Class War)

In all fairness to the Hubbert Heads, there’s a more sophisticated, updated version of Hubbert’s theory. This is where the “peak” concept comes in. In this version of the Hubbert scripture, we ignore his dead wrong prediction of total crude available and look only at the up and down shape of his curve, the “peak.” The amount of oil discovered each year, Hubbert posited, will stop rising by 2000, then will crash rapidly toward zero when we will have used up our allotted 1.25 trillion barrels. We haven’t crashed or even peaked. Oil production has risen year after year after year and discoveries have more than kept pace.

Nevertheless, like believers undaunted by the failure of alien spaceships to take them to Mars on the date predicted, Peak enthusiasts keep moving the date of the oil apocalypse further into the future. In the new, revisionist models of Hubbert’s prediction, the high point in the curve of discoverable oil on our planet will come in a decade or so. Though we have a reprieve, goes the new theory, still, we’re running out of crude, dude! There’s only another twenty years left in proven reserves! Oh, my! “It’s true that there’s only twenty years’ supply left—and that’s been true for the last hundred years,” Lewis Lapham told me over a decent sauterne at Five Points. (He more often sups at Elaine’s, but I don’t rate that.) Lapham of Harper’s magazine is the only editor in the hemisphere with hard knowledge of the petroleum market, insight he inherited legitimately: His family helped found Mobil Oil, the back half of what is now Exxon Mobil.

He asked, “Why in the world would oil companies, or any company, announce that there’s lots of its product out there? You’d bust your own market. It’s better to say the cupboard’s bare.” As Lapham noted, we have been “running out of oil” since the days we drained it from whales. OPEC’s big headache before the war shut down Iraq’s fields was that there was way too much oil. We were swimming in it and oil prices stayed low. The last thing oil companies want is more oil from Iraq, any more than soybean farmers want more soybeans from Iraq. Increasing supply means decreasing price.

This war is about the oil, but what about the oil? The Hubbert Peaksters think they know. They are convinced that Dick Cheney in his bunker is panicked that the world’s supply of oil is about to run out, and so to Iraq we go, to seize the last of it. Here’s the flaw in that argument: To believe that George Bush and Dick Cheney hustled us into Iraq to open up that nation’s untapped bounty of petroleum is to believe that these two oil Texans in the White House are deeply troubled that the price of oil will rise unless they get us more crude.

But Dick and George get a rise out of the rise.

Have we peaked? The planet is producing today twice as much as the maximum predicted in 1956 by the “Peaking Man.” But the political uses of holy-shit-we’re-running-out-of-oil! has yet to peak. Indeed, Bush and Cheney are more than happy to allow others to promote Hubbert Peak hysteria in the public. “We need Iraq’s oil” is used as a good bogeyman to get the public behind an invasion that promises to get Americans a fill-up for the family gas guzzler for less than a hundred dollars. Anti-war progressives seized on the Hubbert humbug as proof that Bush’s invasion was a war of “Blood for Oil.” Nuns, professors and rock stars were outraged. But the average American thinks, Blood for oil? That’s a BARGAIN.

The Shell Game

Hubbert’s predictions may have been astonishingly wrong but his little forty-page research report is, nevertheless, astonishingly important in understanding the mindset of Big Oil.

Almost everything you need to know about Hubbert and the agenda behind his crucial 1956 study is contained on its cover page. The oil doomsday pronouncement is “Publication No. 95, Shell Development Company, Houston, Texas.” Hubbert was the chief Consultant on general geology for Shell Oil and his “end of oil” paper was presented to the Texas meeting of the American Petroleum Institute. All else flows there from.

Every once in a while the landlords of the planet have to remind us to be grateful for their services. In 1956 it was Shell Oil’s turn and Hubbert was their man for the job. It was not a happy time for the oilmen of Texas. Shell and the other Seven Sisters, as Big Oil was then known, faced a heck of a problem: crude was cheaper than dirt—$2.77 a barrel, that is, a nickel a gallon—and sinking. Worse, they were finding more of the stuff all over the planet, meaning prices would fall further. In March of that year, Hubbert presented the solution to his fellow oilmen at the API in Houston. He unveiled this magical chart, which you can view here in its original form as a public service.

The total sum of oil is 1,250 billion barrels—which runs out in 2006. This chart assumed a low annual burn of oil.

Look closely. When Hubbert spoke, oil reserves worldwide were zooming heavenward. Despite the tide of petroleum rising around us, Hubbert declared that oil discoveries in the USA had begun to peak “as recently as 1951 or 1952” and that the world’s reserves would follow not long thereafter. He didn’t need to wink. His oil industry audience understood what oil giant Shell wanted America to believe: Oil isn’t abundant, it’s a scarce commodity and therefore…

1. It’s too cheap—so oil companies should, for the public’s own good, raise the price to conserve this precious resource.

2. We need to find an abundant alternative to fossil fuel.

3. We need to protect our access to dwindling sources of crude, by force if necessary.

Shell Oil, through Hubbert, sought, successfully, to change the way America thought of oil’s price, alternatives to oil and access to oil.

PRICE: The problem of falling oil prices was solved for Shell, brilliantly, in four years, in 1960, by the creation of OPEC. On paper, OPEC was created by national governments. If oil companies had created this cartel to fix prices, that would have made it a criminal conspiracy—cartels are illegal. But when governments conspire for the same purpose, the illegal conspiracy turns into a legitimate “alliance” of sovereign states. OPEC’s government cover makes the price-fixing perfectly legal, and Big Oil reaps the rewards.

ALTERNATIVES: As to replacing fossil fuels, Hubbert had the answer:
Limitless nuclear power. His 1956 paper is not called “Peak Oil.” Its title is “Nuclear Energy and the Fossil Fuels.” His let’s-go-nuclear chart, call it “Hubbert’s Plateau,” is usually ignored. You can view it here.

Note that Hubbert envisions a high, flat plateau of nuclear energy outstripping fossil fuels by the twenty-first century, providing us a comfy, electric economy for five thousand years. Hubbert’s Uranium Reich was longer than anything the Fuhrer could have imagined. Who would supply all this nuclear fuel? Lucky for us that Hubbert’s company, Royal Dutch Shell, was about to announce the formation of its new mega-venture, “URENCO,” a uranium enrichment consortium.

ACCESS: Protecting our access to petroleum, a “peaking” resource, was Shell Oil’s urgent message. Hubbert’s paper was published in June 1956, not long after the CIA overthrew Iran’s Prime Minister Mohammed Mossadegh for having nationalized Shell’s and BP’s assets. The paper was released just one month before Gamal Abdel Nasser, Egypt’s President, seized the Suez Canal, the oil tanker passageway, and just months before a British-French-Israeli invasion force took it back. Hubbert’s Peak thinking helped provide a justification for war over this “strategic resource.”

Have we peaked? Worldwide oil reserves continue to rise even faster than America and China can burn it. Since 1980, reserves, despite our binge-guzzling, have risen from 648 billion to 1.2 trillion barrels. Yet, weirdly, despite the rising flood of discovered crude, its price quadrupled between 2001 and 2005. Supply choked, yet there’s no peak in sight. Behind this slow in the flow of crude:

His bit of bother in OPEC’s second-largest reserve (Iraq)

Putin’s cutting off financing to, then his seizing of, Russian producer Yukos Oil, reducing its output

Hubbert’s Plateau

U.S.-promoted sabotage of oil piping, loading and refining systems in Venezuela

And, not least of all, the Saudis sitting on their spigots.

The oil squeeze tightened after the Bush Administration, beginning with the energy bill of 2001, abandoned conservation and encouraged a monstrous jump of two million barrels a day in U.S. oil consumption.

So please don’t slander Mother Earth and say she’s run out of oil when it’s man-made mischief to blame. Evil, not geology, has a chokehold on energy; nature is ready to give us crude at $12 a barrel where it was just a few short years ago.

Glenn Jackson, $3 gasoline, and mass transit


By Russell Sadler

The late Glenn Jackson was arguably the most influential un-elected official in shaping Oregon’s suburban development.

As CEO of Pacific Power and Light, Jackson would have been an influential figure anyway. But he chaired the State Highway Commission for so long he determined the design of the highway infrastructure that shaped the state’s explosive post-World War II growth.

Jackson died in June 1980. In the year before his death, I had one of the last interviews with him. With the memories of the Arab Oil Embargo and its soaring prices and long lines at the pumps still fresh in the public mind, I asked Jackson, “Do you think the suburban, automobile-dependent lifestyle we have built is sustainable?”

“Probably,” Jackson responded after a long, thoughtful pause, “unless gas costs $3.00 a gallon.” We both chuckled and the interview ended.

Nearly 26 years later, gasoline costs more than $3.00 a gallon nearly everywhere in the United States. Stories about the financial hardship people are enduring just to fill their gas tanks fill the news. Nor is it just a suburban problem. Cheap gas allowed many people to find inexpensive housing in rural areas and commute to jobs in towns and small cities.

But gasoline is a necessity and the rising gas prices mean less disposable income. For the poor, the price of commuting can burn up most of what they earn.

Public transit is an alternative in some urban areas, but travel time is longer. And even the middle class in their comfortable suburbs are spending much more of their disposable income commuting to jobs that support their suburban lifestyle. Americans are running harder just to stay in place.

Jackson was shrewd enough to realize that energy transition problems would emerge when the world began to believe it was running out of oil, not when the oil actually ran out.

There is a good argument that world oil production is at its peak or has just peaked and is actually declining. The oil companies and oil producing nations know it or at least believe it. That’s why prices have climbed so rapidly. Since no one expects to see gasoline priced below $3.00 anytime soon, it’s probably a good idea for the rest of us to get busy dealing with the transition problems as we move from comparatively cheap petroleum to expensive petroleum. It becoming clear our present lifestyle is not sustainable for too many people.

I dislike writing pessimistic columns as much as you dislike reading them. I have a couple of former students who, because of deliberate choices that they made about five years ago, are only indirectly affected by the rising price of gasoline. I think there is a lesson in their choices.

When the Oregon Highway Commission was renamed the Oregon Transportation Commission in 1968, it reflected a change in attitude toward freeways -- at least in the Portland metropolitan area. Gov. Bob Straub blocked the construction of the Mt. Hood Freeway and appointed commissioners sympathetic to light rail lines. Former Congressman Les AuCoin and former Sen. Mark Hatfield helped fund light rail from their positions on the House and Senate Appropriations Committees.

Widely mocked by Libertarians and the build-freeways-and-be-damned crowd, light rail commuting has been embraced by a younger generation.

My two former students met and married at Southern Oregon University. They had a child. When the graduated, they deliberately moved to Portland to well-paying high-tech jobs at companies located along the light rail line. They deliberately bought a condo in one of the development nodes along the light rail line. They deliberately had a second child. They deliberately chose not to own a car. When they need a car they rent one.

With the money they saved from not owning a car -- it’s thousands of dollars a year -- my former students paid off most of their student loans. They can afford two lovely children and children are not cheap. They do not think they have suffered or sacrificed by not owning a car and they have not felt the economic dislocation from rising gasoline prices like their fellow workers who commute by car.

“But everyone can’t do that, Sadler,” you say. I couldn’t agree more. But thanks to some farsighted government planning, my former students had that choice to make.

Instead of paying unwarranted “compensation” to landowners who want to perpetuate the unsustainable post-World War II suburban sprawl model, we ought to be revising the land use laws to encourage more light rail oriented development so more people have the choice of living that way in the rapidly emerging era of high priced petroleum.

Now there’s a platform plank that some candidates for governor and the Legislature can run on.

Saturday, May 20, 2006

End Times

Los Angeles Times

By Dan Neil

If Al Gore's documentary "An Inconvenient Truth" has a single message, it's that global warming is bad—very, very bad. Floods, droughts, famine, disease . . . a miasma of End Times calamity caused by the burning of fossil fuels.

Even at that, Gore is—at the risk of paraphrasing—a candy-assed optimist, according to James Howard Kunstler, author of "The Long Emergency: Surviving the Converging Catastrophes of the Twenty-First Century."

Whereas Gore and other prophets of climate change believe we still have the time and means to avert the worst consequences of anthropogenic global warming—hybrid cars, solar panels!—Kunstler argues with hellish persuasion that we are basically toast. Why? The entire edifice of American civilization—from our mega-scale methods of food production to our great repositories of national wealth, that is, the equity invested in our sprawling suburbs—is propped up, trembling as if balanced on matchsticks, on cheap oil. And there is no substitute for cheap oil.

But wait, I say, when I get him on the phone at his house in Saratoga Springs, N.Y. What about plug-in electric vehicles and pure electric vehicles, not a few of which are, here in California, being charged by DIYers' solar panels? What about wind power, biomass or wave power? Kunstler emits a well-practiced harrumph.

"When confronted with these ideas, people generally go through . . . what was her name? . . . Kubler-Ross' stages of grief," Kunstler tells me. "You're still in the bargaining phase." Nothing, no deliverance of technology, he says, could possibly replace the cheap energy we get from oil, and even if it could we would have to surmount the "incredible passivity" of the American people narcotized by decades of abundant petroleum. Kunstler derides the belief that alternative energy will save us as Jiminy Cricket-like wishing upon a star.

When I ask him about the TerraPass program at the University of Pennsylvania's Wharton School (drivers pay a fee proportional to the size of their cars to offset their cars' carbon impact), he goes bananas. "What do I think? I think it's [colorful intensifier here] stupid!" he fairly shouts. "There's not going to be a [ditto] Wharton School!"

So, that would be a nay, then?

Kunstler, 57, has emerged as the most dire and articulate proponent of a school of thought known as Peak Oil, the idea that the world has or will soon reach maximum oil production, after which oil becomes scarcer and more expensive to extract. There's nothing theoretical about it. Like global warming, Peak Oil—a bell-curve description of oil reserves first outlined by geophysicist M. King Hubbert—is widely accepted by serious people. Discoveries of new oil topped out in 1964. The world consumes about 27 billion barrels of oil a year. At current pace, the world's estimated 1 trillion barrels of oil reserves will be gone within a few decades, but as a practical matter, extracting every drop from sources like Canadian oil shale would be impossible, since the effort would consume more energy than it produces.

"After peak," writes Kunstler, "all bets are off about civilization's future."

As gas prices in Southern California hover near the $4-per-gallon mark, Kunstler's book—recently released by Grove Press in paperback—seems a lot less fanciful than one would hope. What happens when gasoline reaches $10 or even $20 per gallon, as it almost certainly will, according to Kunstler? The social ecology of suburbia will collapse, and the nation's endless capillary networks of tract homes, with their lawyer foyers, pools and bonus rooms, will become vast ghettos inhabited by gas-less and immobile squatters. The food production system will likewise crumble, resulting in famine and death.

The collapse of industrial agriculture is just one of many ways that "peakniks"—adherents of Peak Oil—contend that these events will precipitate a die-off of humanity (though, in an unusually sanguine moment, Kunstler says he prefers the term "die down" because humanity will live on, despite its reduced circumstances). In the absence of any large-scale organizing feature—federal government itself being a manifestation of cheap oil—America will descend into neo-feudalism, where plowmen will be a lot more useful than IT directors. Put another way: It'll be Amish with guns.

I'm not convinced that the post-oil era will play out quite so apocalyptically. Yes, America wastes a lot of energy, which means it could conserve that energy before having to plow under the suburbs for farmland. Just for an example, the Department of Energy estimates that new full-spectrum LED lighting could reduce electrical consumption by about a third by 2025. With sufficient national will, America could convert to a nearly all-electric automotive fleet in a decade, putting our mobility onto a more sustainable, renewable footing.

But we've got some major infrastructural remodeling to do. Can we do it? Can we negotiate a soft landing? The first step, of course, is getting people to understand that, just like the once-derided case for global warming, Peak Oil is real, to see that train a'coming. Then to act decisively, resisting both a sense of futility and the urge toward anarchy.

It's a matter of hoping Al Gore is more right than Kunstler.

Thursday, May 18, 2006

Peak Oil Panic


Is the planet running out of gas? If it is, what should the Bush administration do about it?

By Ronald Bailey

The Princeton geologist Ken Deffeyes warns that the imminent peak of global oil production will result in “war, famine, pestilence and death.” Deffeyes, author of 2001’s Hubbert’s Peak: The Impending World Oil Shortage and 2005’s Beyond Oil: The View from Hubbert’s Peak, predicted that the peak of global oil production would occur this past Thanksgiving.

Deffeyes isn’t alone. The Houston investment banker Matthew Simmons claims in his 2005 book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy that the Saudis are lying about the size of their reserves and that they are really running on empty; last September he announced that “we could be looking at $10-a-gallon gas this winter.” Colin Campbell, a former petroleum geologist who is now a trustee of the U.K.-based Oil Depletion Analysis Centre, warned way back in 2002 that we were headed for peak oil production, and that this would lead to “war, starvation, economic recession, possibly even the extinction of homo sapiens.” In his 2004 book Out of Gas: The End of the Age of Oil, the Caltech physicist David Goodstein wrote that the peak of world production is imminent and that “we can, all too easily, envision a dying civilization, the landscape littered with the rusting hulks of SUVs.” Jim Motavalli, editor of the environmentalist magazine E, writes in the January/February 2006 issue, “It is impossible to escape the conclusion that we’re steaming full speed ahead into a train wreck of monumental proportions.”

And James Schlesinger, the country’s first secretary of energy, declared in the Winter 2005–06 issue of the neoconservative foreign policy journal The National Interest that “a growing consensus accepts that the peak is not that far off.” He added, “The inability readily to expand the supply of oil, given rising demand, will in the future impose a severe economic shock.”

Even some traditionally calm voices are starting to sound panicky. In March 2005, the New York investment bank Goldman Sachs issued a report suggesting that oil prices would experience a “super spike” in 2006, reaching up to $105 per barrel. ChevronTexaco’s campaign, featuring a series of full-page newspaper ads that urge Americans to conserve energy, flatly declares, “The era of easy oil is over.”

Such forecasts have been bolstered by a steep rise in oil prices over the last three years, going from $18 a barrel in 2002 to $70 last fall. If the price of something goes up, after all, that means it’s becoming scarcer.

The good news is that the peak oil doomsters are probably wrong that world oil production is about to decline forever. Most analysts believe that world petroleum supplies will meet projected demand at reasonable prices for at least another generation. The bad news is that much of the world’s oil reserves are in the custody of unstable and sometimes hostile regimes. But the oil producing nations would be the ultimate losers if they provoked an “oil crisis,” since that would spur industrialized countries to cut back on imports and develop alternative energy technologies.

Apocalypse Yesterday

Predictions of imminent catastrophic depletion are almost as old as the oil industry. An 1855 advertisement for Kier’s Rock Oil, a patent medicine whose key ingredient was petroleum bubbling up from salt wells near Pittsburgh, urged customers to buy soon before “this wonderful product is depleted from Nature’s laboratory.” The ad appeared four years before Pennsylvania’s first oil well was drilled. In 1919 David White of the U.S. Geological Survey (USGS) predicted that world oil production would peak in nine years. And in 1943 the Standard Oil geologist Wallace Pratt calculated that the world would ultimately produce 600 billion barrels of oil. (In fact, more than 1 trillion barrels of oil had been pumped by 2006.)

During the 1970s, the Club of Rome report The Limits to Growth projected that, assuming consumption remained flat, all known oil reserves would be entirely consumed in just 31 years. With exponential growth in consumption, it added, all the known oil reserves would be consumed in 20 years. These dour predictions gained credibility when the Arab oil crisis of 1973 quadrupled prices from $3 to $12 per barrel (from $16 to $48 in 2006 dollars) and when the Iranian oil crisis more than doubled oil prices from $14 per barrel in 1978 to $35 per barrel by 1981 (from $45 to $98 in 2006 dollars).

In response, the federal government imposed price controls on oil and gas in the 1970s and established fuel economy standards to encourage the sale of more efficient automobiles. The sense of doom did not dissolve. In 1979 Energy Secretary Schlesinger proclaimed, “The energy future is bleak and is likely to grow bleaker in the decade ahead.” The Global 2000 Report to President Carter, issued in 1980, predicted that the price of oil would rise by 50 percent, reaching $100 per barrel by 2000.

Most of today’s petro-doomsters base their forecasts on the work of the geologist M. King Hubbert, who correctly predicted in 1956 that U.S. domestic oil production in the lower 48 states would peak around 1970 and begin to decline. In 1969 Hubbert predicted that world oil production would peak around 2000.

Hubbert argued that oil production grows until half the recoverable resources in a field have been extracted, after which production falls off at the same rate at which it expanded. This theory suggests a bell-shaped curve rising from first discovery to peak and descending to depletion. Hubbert calculated that peak oil production follows peak oil discovery with a time lag. Globally, discoveries of new oil fields peaked in 1962. The time lag between peak global discoveries and peak production was estimated to be around 32 years, but peak oilers claim that the two oil crises of the 1970s reduced consumption and thereby delayed the peak until now. Hubbert’s modern disciples argue that humanity has now used up half of the world’s ultimately recoverable reserves of oil, which means we are at or over the peak.

The prophets of oily doom are opposed by preachers of energy abundance. Chief among the latter is the energy economist Michael Lynch, president of the Massachusetts-based Global Petroleum Service consultancy. “Colin Campbell has the worst forecasting record on oil supply,” says Lynch, “and that’s saying a lot.” He points out that in a 1989 article for the journal Noroil, Campbell claimed the peak of world oil production had already passed and incorrectly predicted that oil would soon cost $30 to $50 a barrel. As for Matthew Simmons, Lynch dismisses him with a sneer: “Petroleum engineers know a lot more about petroleum engineering than a Harvard MBA.”

One petroleum engineer— Michael Economides of the University of Houston—calls peak oil predictions “the figments of the imaginations of born-again pessimist geologists.” Like Lynch, Economides, who worked in Russia to boost that country’s oil production in the last decade, rejects Simmons’ analysis. Saudi Arabia, which currently produces about 10 million barrels of oil a day, “is underproducing every one of their wells,” he claims. “I can produce 20 million barrels of oil in Saudi Arabia.”

The Tank Is Still More Than Half Full

So who’s right? Fortunately, it looks like humanity is at least a generation away from peak oil production. Unfortunately, there could be another “oil crisis” any day now.

The world consumes about 87 million barrels of oil per day, or nearly 30 billion barrels of oil per year. How much oil is left? It’s hard to be sure. Proven oil reserves—i.e., oil that is recoverable under current economic and operating conditions—are estimated to be 1.1 trillion barrels by the industry journal World Oil, 1.2 trillion by the oil company BP, and 1.3 trillion by the Oil and Gas Journal. In March 2005 the private U.K.-based energy consultancy IHS Energy estimated that the world’s remaining recoverable reserves, excluding unconventional sources such as heavy oil or tar sands, are between 1.3 trillion and 2.4 trillion barrels.

But are proven reserves all that’s left? Several analyses put ultimate reserves at much higher levels. For example, the USGS undertook a comprehensive analysis of world oil reserves in 2000. It calculated that the total world endowment of recoverable oil is 3 trillion barrels. (Its figure is higher because it includes estimates for undiscovered resources and projected increases in already producing fields.) In addition, the total world endowment of natural gas is equivalent to 2.6 trillion barrels of oil, plus 330 billion barrels of natural gas liquids such as propane and butane. The USGS figures that the total world endowment of conventional oil resources is equivalent to about 5.9 trillion barrels of oil. Proven reserves of oil, gas, and natural gas liquids are equivalent to 2 trillion barrels of oil. The USGS calculates that humanity has already consumed about 1 trillion barrels of oil equivalent, which means 82 percent of the world’s endowment of oil and gas resources remains to be used.

In its 2005 Energy Outlook, ExxonMobil estimates “global conventional oil resources total 3.2 trillion barrels…with non-conventional ‘frontier’ resources such as heavy oil bringing that total to over 4 trillion barrels.” In November 2005, the International Energy Agency, an organization created in 1974 by 26 industrialized countries to assess global energy issues, released its annual World Energy Outlook report, which accepted the USGS numbers and concluded that “the world’s energy resources are adequate to meet projected growth in energy demand” until at least 2030. The report predicted that oil production would grow from the 2004 level of 82 million barrels a day to 115 million barrels a day and that any “peak” would occur after 2030. It suggested that world oil prices will decline to around $35 per barrel (in 2004 dollars) by 2010 and eventually rise to $39 per barrel by 2030. At the Montreal Climate Change Conference in December, Claude Mandil, head of the International Energy Agency, declared: “We don’t share the tenets of the peak oil theory. We feel that they underestimate technological developments. For many decades to come there is no geological problem.”

Probably the most respected private oil consultancy in the world is Cambridge Energy Research Associates (CERA) in Boston. On December 7, 2005, CERA senior consultant Robert W. Esser testified at a House Energy and Air Quality Subcommittee hearing on the peak oil theory. “CERA’s belief is that the world is not running out of oil imminently or in the near to medium term,” Esser said. “Indeed, CERA projects that world oil production capacity has the potential to rise from 87 million barrels per day [mbd] in 2005 to as much as 108 mbd by 2015.…We see no evidence to suggest a peak before 2020, nor do we see a transparent and technically sound analysis from another source that justifies belief in an imminent peak.” Instead of a sharp peak followed by a production decline, CERA’s analysts foresee an “undulating plateau” in which global oil production remains more or less steady. “It will be a number of decades into this century before we get to an inflection point that will herald the arrival of the undulating plateau,” said Esser.

Peak oilers discount these rosy scenarios, insisting the relevant fact is that new oil discoveries have been falling during the last couple of decades. But the petroleum optimists, such as the analysts at the USGS, say there is more to it than that. They point out that reserve growth and new discoveries have been outpacing oil consumption. (Reserve growth is the increase in production in already discovered and developed fields.) From 1995 and 2003 the world consumed 236 billion barrels of oil. It also saw reserve growth of 175 billion barrels, combined with 138 billion barrels from new discoveries, added a total of 313 billion barrels to the world’s proven oil reserves. In the U.S., oil field reserves typically turn out to be four to nine times as high as the original estimates. The increase in production is a result of improved recovery technologies, further discoveries in the field, and improved field management.

Consider the Kern River field in California, which was discovered in 1899. In 1942 it was estimated that only 54 million barrels remained to be produced there. During the next 44 years the field produced 736 million barrels and had another 970 million barrels remaining. For geological reasons, petroleum engineers cannot pump every drop of oil out of a reservoir. But by 2004 technological advances enabled them to recover 35 percent of a conventional reservoir’s oil, up from an average of 22 percent in 1980. If this recovery factor can be increased by another five percentage points, that would boost worldwide recoverable reserves by more than all of Saudi Arabia’s current proven reserves. Economides points out that in 1976 the U.S. was estimated to have 23 billion barrels of reserves remaining. In 2005 it still had 23 billion barrels of oil reserves, even though American oil fields produced almost 40 billion barrels of oil between 1976 and 2005.

Matthew Simmons claims to have found that the Saudis are greatly exaggerating the size of their reserves. If true, this is bad news, because the Saudis have more than 30 percent of the world’s reserves and have served as the world’s supplier of last resort for a couple of decades. Simmons argues that the Saudis and others are exaggerating what they have because the supply quotas set by the Organization of Petroleum Exporting Countries (OPEC) were tied to the size of a country’s reserves—the bigger its reserves, the more oil it was permitted to sell. But the desire to boost quotas cannot account for the fact that non-OPEC reserves grew nearly three times faster than OPEC reserves between 1981 and 1996. And whatever incentive OPEC members had to lie about their reserves should have dissipated as the price of oil rose during the last couple of years. Economides notes that the Saudis are investing $100 billion in new production projects, which undercuts the notion that they know they are running out of oil.

At a November meeting of the Council on Foreign Relations, chief International Energy Agency economist Fatih Birol responded to the assertion that Saudi Arabia can’t raise its oil production by outlining a scenario in which he assumed that Saudi oil reserves were 35 percent lower than claimed. Birol noted that experts believe forcing water into reserves to maintain pressure would raise the cost of producing oil by 70 percent at most. In his analysis, Birol assumed it would raise the cost by 300 percent. Considering that it costs about $1.50 to produce a barrel of Saudi crude oil, that means the cost would rise to $6 per barrel. Even with these two assumptions, Birol argues the Saudis could easily produce 18 million barrels of oil per day by 2020, up from the current level of around 10 million.

So if the world has adequate oil supplies for the next generation, can we all go back to driving Hummers? Not so fast.

The Real Oil Crisis

Simmons has been wrong so far: Gasoline does not cost $10 a gallon. Oil prices hovered between $55 and $65 per barrel in late 2005 and early 2006, down from $70 in September 2005. The U.S. Energy Information Administration believes gasoline prices will remain below $3 per gallon in 2006.

What about the future? The International Energy Agency calculates that $3 trillion must be invested in oil production and refining facilities during the next 25 years to meet world demand in 2030. In principle that target could easily be met, since producing 1 trillion barrels at $30 per barrel yields $30 trillion in income over 25 years.

The problem is that the vast majority of the world’s remaining oil reserves are not possessed by private enterprises. Seventy-seven percent of known reserves belong to government-owned companies. That means oil will be produced with all the efficiency associated with central planning. Michael Economides estimates, for example, that it will take $4 billion in investment to keep Venezuela’s oil production at current levels. Yet that country’s Castro-wannabe president, Hugo Chavez, is investing just half that.

If ChevronTexaco, ExxonMobil, or other private companies actually owned the reserves, the world would be in a much more secure position with regard to oil production. Instead, we are subject to the whims of figures like Chavez, Russia’s Vladimir Putin, and Iran’s Mahmoud Ahmadinejad, and must worry about the doubtful stability of their personalities and regimes. (To be sure, even a private reserve under such a regime would face the constant threat of nationalization or other interference.) In the mid-1990s, the world had more than 10 million barrels per day of spare production capacity. That figure has fallen to between 1 and 2 million barrels, which means that any significant disruption in supplies can cause prices to soar.

Economides worries that the conventional wisdom that oil-producing countries do not want to cause a global economic recession is wrong. “The danger posed by the axis of energy militants—Venezuela, Iran, and, increasingly, Russia under President Vladimir Putin—is that they could not care less,” he says. “These militants hardly have functioning real economies whose workings would be adversely affected by a recession.” Economides’ views looked prophetic when oil prices jumped to a three-and-half-month high after Iran’s threat in January to retaliate against any United Nations sanctions imposed to curb its nuclear ambitions by cutting its oil exports.

Despite the recent jump in oil prices, the world’s economy has not slowed down. Why not? Goldman Sachs notes that oil is less important than it was a generation ago. At the height of the Iranian oil crisis in 1980–81, paying for gasoline took up 4.5 percent of U.S. GDP and 7.2 percent of U.S. consumer expenditures. In 2005, even though U.S. gas prices peaked at $3.07 per gallon after Hurricane Katrina, only 2.6 percent of GDP went to pay for gas and consumers spent only 3.7 percent of their incomes to fuel their cars and SUVs. Goldman Sachs believes gasoline prices would need to exceed $4 per gallon before consumers really started to cut back.

As the oil crisis of the 1970s demonstrated, while the demand for oil is inelastic in the short run, consumers do eventually adjust to higher prices. U.S. oil consumption declined by 13 percent between 1973 and 1983. According to Frederick Cedoz, vice president of the D.C.-based energy and political risk consulting group Global Water and Energy Strategy Team, “We get three times more GDP out of a barrel of oil than we did in the 1970s.”

The higher prices of the 1970s led eventually to an oil glut and prices below $10 a barrel by 1986. Should one or more of the “energy militants” choose to deploy the “oil weapon” again, they will cause considerable economic pain to the developed countries. But detonating the oil weapon would end up disarming the energy militants for a generation, after consumer cutbacks produce a new glut.

Oil War Hawks

Unfortunately, you don’t have to go to Iran, Russia, or Venezuela to find energy militants. We have some homegrown ones right here in America, and they think the world is already in the opening stages of a global energy war. Last July, the conservative Heritage Foundation in Washington, D.C., assembled some of the scariest American oil war hawks for a program called “The Coming Energy Wars: A 21st Century Time Bomb?”

All the participants apparently accept the idea that world oil supplies are about to decline, and they all share a zero-sum view of natural resources. According to the Heritage panelists, the chief villain in the coming energy wars is China. Referring to China as the “Thirsty Dragon,” Cedoz warned, “China wants to lock up supplies at the wellhead with long-term purchase contracts.” He darkly pointed to Chinese negotiations over oil supplies in Sudan, Ecuador, and Colombia. (Actually, if the Chinese sign up for long-term contracts, that would encourage producers to invest more in production. That would benefit all consumers, not just the Chinese.)

Refurbished cold warrior Frank Gaffney, president of the Center for Security Policy, opposed the $18.5 billion bid by the China National Offshore Oil Corporation for the California-based oil company Unocal last year. “It’s a very ill-advised transaction,” said Gaffney. “It’s not in our interests to turn over more of our finite resources to others. They should be taken off the market.” Our finite resources? Seventy percent of Unocal’s reserves and production are located in East Asia and the Caspian Sea region.

The Chinese company withdrew its bid after a number of congressmen promised to outlaw the sale. But Gaffney isn’t breathing easier. China’s oil grab, he announced, “is only part of a larger plan to deny us strategic minerals, strategic choke points, and strategic regions. Their purpose is to deny the U.S. a dominant role in the world and if necessary to defeat us.”

Ilan Berman, vice president for policy at the American Foreign Policy Council, regretted that “energy is not viewed through a national security prism. We should be competing to lock up supplies and diversifying and exploring new technologies.” Berman argued that as resources become scarcer there is no way to avoid a zero-sum game. “We have to approach this through the lens of the haves and have-nots,” he declared.

One dissenting voice at the Heritage Foundation session was Harvey Feldman, a former ambassador to Papua New Guinea and an East Asian specialist. “Berman is suggesting that we change from a paradigm of relying on the market,” said Feldman. “OK, we’re going to be in competition with the British, Japanese, French, Germans, Indians, and everybody else. Is this really in the interest of the United States?” Given that most of the experts in the oil business don’t think the world is about to run out of oil, this is one time to hope that President Bush is listening to his buddies in the oil industry.

Instead of preparing for an energy war, the best policy is to let markets have free rein. Even if, say, the Iranians make the political decision to disrupt the flow of oil to world markets, those markets left to themselves will eventually discipline them. The temporarily higher prices will encourage more exploration and technological advances, which will bring energy prices back down. On the day of his inauguration in 1981, President Ronald Reagan lifted oil price controls. Five years later oil prices fell below $10 a barrel.

One day, the oil age will end. As with all resources, there is ultimately a finite supply of oil. So it is not yet clear how the world will power itself for the bulk of the coming century. But we have at least another three decades to find alternatives to petroleum. “Trusting markets is the only way we can assure energy abundance in the future,” notes the University of Houston’s Economides. “It’s also the only way that we will ever transition to something other than oil and gas.”

Ronald Bailey, Reason’s science correspondent, is author of Liberation Biology: The Scientific and Moral Case for the Biotech Revolution (Prometheus)

Monday, May 15, 2006

Raytheon attempts extract oil from shale

By Jay Fitzgerald

Raytheon Co. and CF Technologies think they've developed a breakthrough technology that could help ease the nation's energy supply woes.

Waltham-based Raytheon and Hyde Park-based CF last week said they've jointly come up with a new process that would allow companies to tap into huge underground U.S. shale reserves that can be turned into oil.

The technology entails transmitting radio frequencies into the ground, heating up hydrocarbons in shale and then injecting them with critical fluids that force oil toward wells.

The process is cheaper and more efficient than current technologies used to extract oil from shale, Raytheon said. With oil prices now hovering near historic highs, the technology could help make shale extraction more economically viable for oil companies.

There is an estimated 2 trillion barrels of oil in the nation's shale reserves, located mostly in the Rocky Mountain region. Canada also has huge reserves of tar sand, which Raytheon believes its technology could extract oil from as well.

Raytheon said the technology was an offshoot of prior work with CF in defense-related projects.

"We took a (weapons) systems approach to the energy problem," said John Cogliandro, Raytheon's head engineer on the shale project.
Terri Campbell, a portfolio manager specializing in energy at Boston's Eastern Bank, said recent price spikes in crude oil have made shale a more affordable investment for the oil industry.

She said extracting oil from shale or sand tar wouldn't solve the long-term energy crisis. But it would help delay the depletion of oil resources across the globe, she said.

Monday, May 08, 2006

The Decline of Oil

ENN: Environmental News Network

By Earth Policy Institute

"When the price of oil climbed above $50 a barrel in late 2004, public attention began to focus on the adequacy of world oil supplies - and specifically on when production would peak and begin to decline. Analysts are far from a consensus on this issue, but several prominent ones now believe that the oil peak is imminent," says Lester Brown, President of the Earth Policy Institute. (See

Oil has shaped our twenty-first century civilization, affecting every facet of the economy from the mechanization of agriculture to jet air travel. When production turns downward, it will be a seismic economic event, creating a world unlike any we have known during our lifetimes. Indeed, when historians write about this period in history, they may well distinguish between before peak oil (BPO) and after peak oil (APO).

The oil prospect can be analyzed in several different ways. Oil companies, oil consulting firms, and national governments rely heavily on computer models to project future oil production and prices. One approach - use of the reserves/production relationship to gain a sense of future production trends - was pioneered several decades ago by the legendary King Hubbert, a geologist with the U.S. Geological Survey. Given the nature of oil production, Hubbert theorized that the time lag between the peaking of new discoveries and the peaking of production was predictable. Noting that the discovery of new reserves in the United States had peaked around 1930, he predicted that U.S. oil production would peak in 1970. He hit it right on the head.

A second approach, separating the world's principal oil-producing countries into two groups - those where production is falling and those where it is still rising - is illuminating. Of the 23 leading oil producers, output appears to have peaked in 15 and to still be rising in eight. The post-peak countries range from the United States (the only country other than Saudi Arabia to ever pump more than 9 million barrels of oil per day) and Venezuela (where oil production peaked in 1970) to the two North Sea oil producers, the United Kingdom and Norway, where production peaked in 1999 and 2000 respectively. U.S. oil output, which peaked at 9.6 million barrels a day in 1970, dropped to 5.4 million barrels a day in 2004 - a fall of 44 percent. Venezuela's output has dropped 31 percent since 1970.

The eight pre-peak countries are dominated by the world's leading oil producers, Saudi Arabia and Russia, producing roughly 11 million and 9 million barrels of oil a day in the fall of 2005. Other countries with substantial potential for increasing production are Canada, largely because of its tar sands, and Kazakhstan, which is still developing its oil resources. The other four pre-peak countries are Algeria, Angola, China, and Mexico.

The biggest question mark among these eight countries is Saudi Arabia. Its production technically peaked in 1980 at 9.9 million barrels a day and output is now nearly 1 million barrels a day below that. It is included as a country with rising production only on the basis of statements by Saudi officials that the country could produce far more. However, some analysts doubt whether the Saudis can raise output much beyond its current production. Some of its older oil fields are largely depleted, and it remains to be seen whether pumping from new fields will be sufficient to more than offset the loss from the old ones.

This analysis comes down to whether production will actually increase enough in the eight pre-peak countries to offset the current declines in the 15 peaked production countries. In output volume, the two groups have essentially the same total production capacity. If production begins to fall in any one of the eight, however, world output could decline.

A third way to consider oil production prospects is to look at the actions of the major oil companies themselves. While some CEOs sound very bullish about the growth of future production, their actions suggest a less confident outlook.

One example is the decision by leading oil companies to invest heavily in buying up their own stocks. ExxonMobil, for example, with the largest quarterly profit of any company on record invested nearly $10 billion in buying back its own stock. ChevronTexaco used $2.5 billion of its profits to buy back stock. With little new oil to be discovered and world oil demand growing fast, companies appear to be realizing their reserves will become even more valuable in the future.

Additionally, there is a lack of any substantial increases in exploration and development in 2005, even with oil prices well above $50 a barrel, suggesting that the companies agree with petroleum geologists' assertion that 95 percent of the world's oil has already been discovered. "The whole world has now been seismically searched and picked over," says independent geologist Colin Campbell. "Geological knowledge has improved enormously in the past 30 years and it is almost inconceivable now that major fields remain to be found."

The shrinkage of reserves is strikingly evident in the ratio between new oil discoveries and production of the major oil companies. Among those reporting that their 2004 oil production greatly exceeded new discoveries were Royal Dutch/Shell, ChevronTexaco, and Conoco-Phillips. On a global scale, geologist Walter Youngquist, author of GeoDestinies: The Inevitable Control of Earth Resources Over Nations and Individuals, notes that in 2004 the world produced 30.5 billion barrels of oil but discovered only 7.5 billion barrels of new oil.

The influence on oil production in the coming years that is most difficult to measure is the emergence of what I call a "depletion psychology." Once oil companies or oil-exporting countries realize output is about to peak, they will begin to think seriously about how to stretch out their remaining reserves. As it becomes clear that even a moderate cut in production may double world oil prices, the long-term value of their oil will become much clearer.

Geological evidence suggests world oil production will be peaking sooner rather than later. Matt Simmons, head of the oil investment bank Simmons and Company International and an industry leader, says in reference to new oil fields: "We've run out of good projects. This is not a money issue…if these oil companies had fantastic projects, they'd be out there [developing new fields]." Kenneth Deffeyes, a highly respected geologist and former oil industry employee now at Princeton University, says in his 2005 book, Beyond Oil, "It is my opinion that the peak will occur in late 2005 or in the first few months of 2006." Walter Youngquist and A.M. Samsan Bakhtiari of the Iranian National Oil Company both project that oil will peak in 2007.

Sadad al-Husseini, recently retired as head of exploration and production at Aramco, the Saudi national oil company, notes new oil output coming on-line had to be sufficient to cover both annual growth in world demand of at least 2 million barrels a day and the annual decline in production from existing fields of over 4 million barrels a day. "That's like a whole new Saudi Arabia every couple of years," Husseini said. "It's not sustainable."

This piece is adapted from Chapter 2, "Beyond the Oil Peak," in Lester R. Brown, Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in Trouble (New York: W.W. Norton & Company, 2006), available on-line at