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INVESTOR’S BUSINESS DAILY: Running On Empty? Not Yet

Posted 4/12/2007

Energy: The theory that oil supplies have peaked and are on their way down has made more than a few Americans nervous. They should relax. A new study confirms that the market, if left alone, will provide for decades.

The peak oil theory was popularized by M. King Hubbert, a Shell Oil geophysicist who wrote a 1956 paper claiming U.S. oil production would peak by the early 1970s and then decline. He was right, but not in any meaningful way. Domestic production peaked, but at a level 13% higher than he predicted.

As for the drop that Hubbert projected due to depleted resources, it was short-lived. Production increased after a temporary dip.

Perhaps more important, the volume of reserves has also increased. In the half-century since Hubbert made his gloomy forecast, vast oil supplies have been found in the U.S. and overseas. This happened despite Hubbert’s projection that world oil production would peak roughly 50 years after he wrote his report.

Yet peak oil theorists, many of whom relish the bad news they spread, as if they’re eager for a shortage, can’t shake their belief that oil is running out fast. They’re like the doomsayers who missed predicting the final cataclysm: They just got the date wrong — their revisions show the world will actually end 10 years from now, not yesterday, as they’d been saying for the previous decade.

One peak oil believer, Kenneth Deffeyes, author of “Beyond Oil: The View From Hubbert’s Peak,” has shown that the end-of-the-world gang isn’t unique in revising its forecasts. Deffeyes predicted that world oil production would peak on Thanksgiving Day 2005 — years after he estimated a 2000 peak, then changed it to 2004.

After his Thanksgiving miss, Deffeyes, who calls himself a prophet, decided that peak oil day was actually a few weeks later, arriving on Dec. 16, 2005.

Now he’s going with U.S. Energy Information Agency estimates that say the peak was in May 2005.

“I’ll take it, I’ll take it,” Deffeyes wrote of the EIA’s May date on his Web site, revealing the streak of catty narcissism that runs through many peak oil theorists. They would rather be right and the world run out of oil than be glad to be wrong the way a sports fan is glad to be wrong when his team wins after he predicted a loss.

Though they are easy to dismiss, the peak oil theorists provide a service by reminding us that the world’s oil reserves will eventually be drained. But not tomorrow, not next year, not even next decade, if governments and the Organization of Petroleum Exporting Countries cartel don’t distort of the oil market too sharply.

“The pessimistic claims about peaking oil supplies should be treated with skepticism,” write Professors Eugene Gholz and Daryl Press in a new Cato Institute study. “The most eminent advocate of that argument today once predicted that the global production peak would occur in 1989, but since then global crude oil production has grown by 23%, and oil supply (crude oil and other petroleum liquids) has grown by more than 28%.

“More telling, the world’s ultimately recoverable resources have been growing over time, largely because many fields contain substantially more oil than was originally believed.”

With world consumption growing, how can recoverable reserves be growing? Improved technology, say Gholz and Press. In 1980, they report, a mere 22% of the oil in the average field was recoverable. Today, better technology — thanks to the market — has boosted the recovery rate to 35%, an improvement of more than 50%.

Here’s another nugget from the report: Thirty-five years ago the life index of the world’s oil reserves — the length of time that known reserves could keep up with the current rate of production — was 35 years. By 2003, after 31 years of accelerating oil extraction, the life index was 40 years.

“No one knows how much oil is ultimately recoverable from the earth, but there is no compelling evidence that reserves are running out or that production is near the peak,” write Gholz and Press.

Peak oilers love a crisis and will try to alarm anyone who will listen and hector those who won’t. Their message has attracted anti-progress, back-to-nature cranks and man-is-a-blight, overpopulation fringers, as well as conspiracists. They need to tone down the rhetoric and take another look at the facts.

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

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