'Peak oil' enters mainstream debate
By Adam Porter
Is global oil production reaching a peak?
A few years ago only a handful of geologists and academics were considering such a possibility.
But now it appears even governments are taking a serious look at the subject.
The question is occupying more and more minds around the world.
It could happen soon.
A French government report on the global oil industry forecasts a possible peak in world production as early as 2013.
Don't mention it
The report 'The Oil Industry 2004' takes a long look at future production and supply issues.
But perhaps what is most interesting about this Economics, Industry & Finance Ministry report, is that it actually mentions a possible production plateau at all.
Even one year ago it was unheard of to find the subject mentioned amongst government ministries or financial institutions.
Now banks such as Goldman Sachs, Caisse D'Epargne/Ixis, Simmons International and the Bank of Montreal have all broached the subject.
"They are being forced to by circumstances," says Professor Richard Heinberg, author of 'peak oil' books Power Down and The Party's Over.
"They have relied on optimistic data and rosy outlooks that are being proven to be incorrect."
Nevertheless, some analysts disagree with the notion of any peak in oil production, also known as 'Hubberts curve', after the geologist M King Hubbert who first argued the case.
Deborah White, senior energy analyst at Societe Generale in Paris, says that "we have heard these arguments about 'peak oil' since the idea of Hubert's curve came into being.
"We don't endorse the idea at all."
'Peak oil' mentioned
And yet, the French report, perhaps the most open government dossier yet, questions the viability of long term oil production.
The report's second chapter 'Global Exploration and Production' runs a series of differing scenarios based on current forecasts.
The scenarios differ according to projected demand increases, from 0% to 3% per annum, and possible new field discoveries, between zero and fifty billion barrels a year.
At a rate of 3% increase in demand per year and annual finds of 10 billion barrels, the ministry report states 2013 as "the time of maximum production or 'peak oil'".
That would mean the world's oil consumption would reach its highest point at around 97 million barrels per day (mbpd).
Forced to react
It is also very unusual to find a government report using the wording 'peak oil'. This is a phrase often used to describe the theory of a global oil production plateau, after which production would begin to decline.
Chris Sanders spoke at the recent Association for the Study of Peak Oil conference and is director of international finance consultants Sanders Research.
He believes 'peak oil' is major threat to modern economies.
"There is only so long politicians can ignore a geological problem, and it is a geological one," he says.
"Governments have had a great chance to take the lead on this situation, but they have not taken it. Now they are being forced to react.
"Why? Because it is very probable that we are nearing 'peak oil'."
The French report uses the phrase, in English, and repeats it on no less than four occasions.
The best case scenario the report lays out is rather far fetched, with a 0% increase in world consumption, at only 79mbpd, with annual finds of 50 billion barrels of new deposits per year.
That makes 'peak oil' arrive in 2125.
Unfortunately the report's figures are already outdated. The world consumed 84.7 mbpd in the first quarter of 2005.
International Energy Agency (IEA) forecasts - traditionally regarded as conservative by the markets - put demand at around 86.1 mbpd for the fourth quarter of this year alone.
Its figures put demand growing at 2.2% in the first quarter of 2005.
This means average consumption for 2005 would come out at 84.3 mbpd. Plus, in the past 30 years, new discoveries of oil have averaged about 14 billion barrels per year, with recent discovery rates well below that.
Despite not endorsing a production peak, Ms White is also factoring in demand growth "of around 1.5mbpd over the next five years, which will mean a total demand of around 91.8mbpd in 2010".
The French report also echoes a fundamental problem at the heart of the oil business, namely data transparency.
Without accurate audited data, discovery forecasts, forward pricing and reserve calculations become a matter of debate rather than science.
This year alone the International Monetary Fund, the G7 and IEA have all called on Opec countries and Russia to open their fields to independent scrutiny.
"The definitions of oil reserves are different in many countries," the report observes.
"The capacities of sustainable production by Opec countries are very difficult to estimate. It is impossible to know production levels without waiting, at best, several months."
The report also goes on to look at the daunting levels of cost needed.
Firstly to extract current reserves but also to explore for new deposits.
"Somewhere in the region of $900bn will be needed by 2013 alone to develop [existing] reserves," it says.
"This massive investment will double as one will need to add exploration costs to this figure as future production from 2013 to 2030 will depend on it which means that to be successful, around $250bn a year will need to be spent."
"Ruinously high oil prices are making governments look at the subject," says Professor Heinberg.
"For example, when they are faced with whole industries like the airlines going bankrupt, it forces them to react, but they may be too late."
Ms White takes the problem from a different perspective.
Rather than a costly search for more oil, she recommends conserving its use.
"We are at the wrong stage of the economic cycle for a recession that would cut demand," she says.
"What is very important is conservation, especially in transport. Raising taxes on fuel, introducing toll roads and bridges into major cities for example, but also stopping the spreading of suburbs ever further from city centres.
"Controlling suburban blight is one way to slow oil consumption until we are a society no longer dependent on oil."