T. Boone Pickens' prediction: Oil production is reaching its peak
By Elizabeth Souder
When T. Boone Pickens talks, oil traders listen.
The legendary oilman, who runs a multibillion-dollar commodities hedge fund in Dallas, appears frequently on CNBC to predict oil prices. He's often correct.
So nearly every time he makes a new prediction, the market moves that very day in the direction he forecasts.
"I think you're going to see $150 before the end of the year," Mr. Pickens told CNBC viewers Tuesday.
Sure enough, oil futures ended the day 1.6 percent higher at $129.07 a barrel, another record.
Mr. Pickens is one of several Texans who are pushing the Peak Oil theory of oil scarcity into the mainstream. He believes humans will soon use up half the oil they can extract, and oil production rates will drop, never to recover.
The controversial theory gives oil investors reason to bid prices to record levels and has prompted some local officials to create contingency plans.
Oil company executives try to assure investors and consumers that there will be plenty of oil for many decades to come, so there's no reason for oil prices to have doubled during the last year. Oil traders don't seem to be listening.
M. King Hubbert, a Shell geophysicist from San Saba, Texas, came up with the Peak Oil theory in the 1950s. He studied the way an oil field's production declines as the field matures, until it's barely a trickle. He correctly predicted that U.S. production rates would peak around 1970.
But current Peak Oil theorists disagree on when global production will peak. Some say it's already happened; others give it another decade.
Part of the problem is that it's impossible to find accurate information on exactly how much oil lies underground. Some countries, such as Saudi Arabia, keep their reserve data a state secret.
Matthew Simmons tried to break through the Saudi silence. Mr. Simmons, who owns an investment bank and an oil field services company in Houston, pored over hundreds of technical reports about Saudi fields.
He concluded that Saudi production will soon wane, and the country will no longer be able to turn on the taps anytime humans face an oil shortage.
"Unless I'm totally screwed up in my analysis, we're sitting on the world's biggest delusion ever," Mr. Simmons said..
His best-selling book, Twilight in the Desert, pushed the Peak Oil debate beyond oil traders and engineers, to lawmakers and regular people.
The chief executive of Saudi Aramco joins his oil industry peers in trying to persuade people that oil companies will continue to produce the fuel people need for many, many years.
Abdallah Jum'ah, chief executive of Saudi Arabia's national oil company, estimates that humans have only used about a third to one-sixth of the Earth's oil that we know how to produce.
He told the Cambridge Research Energy Associates annual convention in February that production from the world's largest oilfield, the Ghawar field in Saudi Arabia, has been steady for the last 10 years.
"All of this talk of Ghawar declining and so on, we really don't give a lot of attention to it," he said.
State and local politicians in Minnesota, Connecticut and Oregon have begun to fret about the consequences of declining production and have commissioned reports on the issue.
The Minnesota Legislature passed a resolution Monday calling on the governor to create a plan to meet the challenges of Peak Oil.
"Energy is the ultimate currency," said state Rep. Bill Hilty, who introduced the legislation and is a member of the Association for the Study of Peak Oil and Gas.
"So when you get to the point that you have a decline in the availability of cheap and available energy sources, you can't buy your way out of it," he said.