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The Wall Street Journal: Dead Dinosaurs

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By JUSTIN LAHART     
November 13, 2006; Page C1

Ever since oil prices started falling from their peak levels this summer, investor interest in the idea of peak oil has declined as well.

But peak oil isn’t about the economics of oil but the geology of it. “Price is a very murky window with which to figure out what’s happening with oil supply,” says Ken Deffeyes, a retired Princeton geology professor and leading peak-oil proponent.
 
Peak-oil theory says that when half of the world’s oil has been pumped out of the ground, oil production is at its peak. A steady ratcheting up of oil prices ensues as demand outpaces supply. When that happens won’t be known for sure until years after the fact. Meantime, demand for oil is running so close to supply, plenty of other things can make for sharp price movements, says Mr. Deffeyes.

He estimates that oil production peaked on Dec. 16 last year, close to his long-held prediction that it would peak on Thanksgiving 2005. Depending on which production figures you look at, his timing looks iffy, at best. Then again, when somebody accustomed to thinking in geological time offers such a precise estimate, he’s probably pulling somebody’s leg.

Peak oil got its start with the late M. King Hubbert, a Shell Oil geophysicist who determined that when an oil field was half depleted it had hit peak production and was set for a decline. He estimated in 1956 that U.S. oil production would peak around 1970. “Hubbert’s Peak” was scoffed at in the oil business. Mr. Deffeyes, who worked under Mr. Hubbert in the late 1950s and early 1960s, was one of the few geologists who reckoned Mr. Hubbert was right. Which he was — U.S. oil production peaked around 1970.

Critics argue that applying Hubbert’s theory to the entire world is wrongheaded. There could be undiscovered reserves out there. In September, a group of oil companies announced that they had drawn oil from deep within the Gulf of Mexico, opening what could be the biggest source of U.S. oil since Alaska’s Prudhoe Bay.

Mr. Deffeyes he suspects that major new finds can help ease a decline in global production, but not stop it.

The answer to whether he’s right won’t be found in any price chart, but in the ground.

Write to Justin Lahart at [email protected]

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