Michael Duffy: One of the big factors in world history over the next century could be when the oil starts to run out. It’s known as the peak oil issue, and today I’m going to discuss it with two authors who’ve also worked in the oil industry. Kenneth Deffeyes is a geologist and Emeritus Professor at Princeton University, and he predicts an impending world oil shortage and says there will be chaos in the oil industry, in governments and in national economies. In contrast, Peter Odell, an economist and Professor Emeritus at the Erasmus University in the Netherlands, recommends a more relaxed approach.

Welcome, both of you, to Counterpoint. Ken, your book’s called Hubbert’s Peak. Who is Hubbert?

Kenneth Deffeyes: M. King Hubbert was an American geologist, geophysicist, and lived 1903-1987, and in 1956 he predicted that the American oil production would peak around 1970, which it did. There was a lot of controversy when he made his prediction but then it turned out to be correct. Doing something very similar for world oil, I wind up saying that world oil is going to peak in production on Thanksgiving Day, 2005.

Michael Duffy: Right, that’s very precise. Hubbert…that was unusual, wasn’t it? There has been a history of predictions of resource depletion that had been proved wrong but he actually got it right.

Kenneth Deffeyes: Well, yes, and in 1969 he predicted that world oil production would peak at around the year 2000, and some people said, ‘Well, 2000 came and went and it didn’t peak.’ Well, if it happens around 2005 or 2006, that was pretty good shooting if you were taking aim from back in 1969.

Michael Duffy: That’s very good. Can I ask you, what are your reasons for thinking it’s going to peak this year, and will you know at the time? Will there be any piece of evidence? Will anything happen that will tell you that you are right?

Kenneth Deffeyes: Well, I think it’s already happened. In Hubbert’s case…one expression—you only know it when you see it in the rear view mirror—you know, after it’s gone past…But the 1970 peak was obvious when, in 1972, the Texas Railroad Commission (which was the OPEC of its day) announced that there would be no production rationing in Texas the next month, all the wells could produce as much as they wanted, 100% allowable. And that said the United States has no more production capacity. And in March 2003, Saudi Aramco and the Saudi government told western oil countries and western governments that they were maxed out, that they could go to 9.2 million barrels a day and that was it, and they haven’t gone past 9.2 or 9.5 million barrels in any month even. And last year they averaged about 8.9 million barrels a day. So, to me, that Saudi announcement was an echo of what the Texas Railroad Commission had said.

Michael Duffy: Peter Odell, can I ask you what you think of Ken’s forecast?

Peter Odell: I hear what he says but I don’t accept what he means. I think claiming that Hubbert’s peak was correct in terms of the year is fine, but the decline curve since then has been much less steep than he forecast, because what he failed to observe was that reserves of oil grow over time as demand necessitates. That has happened in the United States; it’s not reversed the downward slope, certainly, but it has made it much less steep. It’s certainly not happening at the international level. Saudi Aramco in Saudi Arabia is not only sure that it will get through 10 million barrels a day but is aiming towards it, and even up towards 15 has been indicated as a potential future for that largest of all the world’s oil producing countries.

Michael Duffy: So Peter, when do you think the oil will run out?

Peter Odell: Well, my guess is Thanksgiving Day in about 2035, if we can be as precise as each other. I’m not quite sure when Thanksgiving Day is, of course, as we don’t have one.

Michael Duffy: We don’t actually have one in Australia either, Ken. Can you just enlighten us…?

Kenneth Deffeyes: It’s the last Thursday in November…but in 2035 do you have a particular day? Or just 2035…?

Peter Odell: Mid 2030s…what I foresee is a steady growth in the production and the use of oil at under 2% per annum, and remember that’s quite a low rate of increase in growth. We had a period of about 30 years when it was rising at around 7 to 8% per annum. It’s been well off that ever since the late 1970s. It’s been around 2% now for some 20 to 25 years. My own forecast is that that will fall still further; not because we’re running out of oil—we’re not—but because it’s running into competition with an increasing volume of natural gas flowing onto world markets. If you take the somewhat lower rate of increase, then we’ve a total resource base in the world of some three trillion barrels. You don’t come to a necessary peak until sometime around the mid 2030s.

Michael Duffy: Ken, can I ask for your response to that?

Kenneth Deffeyes: The first question is, of course, is that three trillion barrels the United States geological survey estimate? And secondly, we’re beginning to feel the stress…and particularly I’d like to ask, do you think that China and India now are going to have very large requests for oil because of their newfound economic wealth?

Peter Odell: Certainly they’re going to use more oil in the same way that the United States, Britain, Europe—the rest of the industrialised world also used more oil over time as people began to first ride motorbikes and then began to drive cars, as we wanted improved heating systems and all the rest. What the Chinese and Indians can take advantage of is the fact that the use of oil now is very much more efficient than it was in the past; we get more miles per gallon from our motorcars, we get more electricity out of the back end of an oil fired power station, and both the Chinese and the Indians are taking that on board in order to avoid difficulties over matching increasing demand with an increasing supply—which in both cases comes only partially from the country itself but also from other parts of the world, most notably the Middle East.

Michael Duffy: Ken, can I just change the subject slightly here—if you’re right and oil does run out this year or next year, whenever—what are the biggest problems that you predict will happen?

Kenneth Deffeyes: Well, it’s not oil running out, it’s just that the growth in oil production stops, and as we go over the top of the curve we don’t have any growth for a while and then it starts to go down. But the kinds of things that I am predicting are increased volatility in price because when the demand on the system approaches the capacity of the system little things mean a lot; a SARS scare that cuts back on air transport, an unusually warm winter in the American northeast will cut back on the demand for oil and the price falls much more than just that change in demand. On the other hand, an abnormally cold winter and suddenly the price shoots up. So two years ago, three years ago, over one week the price of natural gas here in the northeast of the United States doubled over one weekend, the price doubled. So we’re going to see very large volatility. My sarcastic line about that is that OPEC can no longer control the price of oil. So the good news is OPEC is not in charge of oil…the bad news is nobody’s in charge of the price of oil.

Michael Duffy: Peter, I guess you think we’re going to have a soft landing here, don’t you? I think you’ve talked about the take-up of new technology and alternative uses of other energy and things like that.

Peter Odell: Yes, indeed, but before coming on to that let me say that at least we’ve reached a point in the discussion where Ken and I are in agreement. I agree with his analysis of the increasing volatility of the oil price. I think that’s a function more of political events in countries like Venezuela, Russia, and most especially the Middle East, to which there are reactions now on a market which is not really controlled any more by OPEC and not really controlled any more by the producers and the users of oil but much more controlled by the speculators on the futures markets in New York and Singapore and London.

Over this past year the great volatility of prices and the great increase in prices that we’ve experienced was not a function of demand exceeding supply but a function of the work of the traders on those exchanges in making deals that enable them at the end of the day to make a great deal of money. In fact, those that were successful are taking huge barrelfuls of money along to the bank at the end of the year as a result of a very successful season for them in terms of trading in oil.

Michael Duffy: Ken, can I just ask you about that because it is an issue that seems to come up in discussions of this subject. Do you think the high prices of oil that we’ve seen recently…is that all it is, just a short-term thing?

Kenneth Deffeyes: Well, there is the problem of emotions that some kinds of news…you know, there’s a hurricane in the Gulf of Mexico and production platforms are shut down, and this tends to get magnified because of…Peter’s right, some traders then say, ‘Oh the price is going to go up,’ and they pound in bidding up the price. So there are emotional aspects to the trading that determine the price. We saw in the 1980s very large volatility in price, and I agree, at that time it was due to political interruptions, but I’m worried that in the next round it’s going to be that nobody has any surplus production capacity.

Michael Duffy: Peter, I was just about to ask you about other sources of energy. For example, in recent decades natural gas seems to have become increasingly used. Why has that happened, and what will it do for our demand for oil or, indeed, coal?

Peter Odell: Well, the increase in the demand for gas is a function of an increasing number of countries, even continents, that have, in a sense, almost discovered it for the first time. Natural gas, as Ken knows from his own experience, has been around for yonks in North America, way back to the beginning of the last century. Here in Europe we didn’t really talk in terms of natural gas as being significant at all until as recently as 1960 with the discovery of the giant field in the northern part of the Netherlands. But over the past three or four decades, the use of gas in Europe generally has increased very sharply, and here in the UK, indeed, natural gas is now the single most important source of energy feeding into the economy. One also looks to other parts of the world; Latin America, for example, Russia and the former soviet republics other than Russia are also moving over towards gas very strongly. Southeast Asia too is also taking advantage of the availabilities of gas from a variety of sources, sometimes via pipelines, but more especially in that area of liquefied natural gas from, of course, Australia amongst a number of other suppliers. In fact, Australian natural gas is increasingly significant in your country’s trade with China.

Michael Duffy: Do we have any idea of what the natural gas reserves are or when they’ll run out?

Peter Odell: Volumetrically, just in terms of energy content, they’re just about on a par with oil, but of course much less has been used and therefore there remains very much more left to use. In my study of the future for natural gas I’ve come to the conclusion that the use of gas by the end of this century could be more than five times the size of current gas use and it will make it the single, largest, most important source of energy in the world as a whole from about 2050-2060 onwards. One advantage of that over oil is that, of course, it’s much less environmentally polluting and produces less CO2 per unit burned, and so it’s considered advantageous even by the environmentalists.

Michael Duffy: Do you think it will also reduce our use of coal?

Peter Odell: Not necessarily. Coal is a very specific commodity to a relatively limited number of countries, both in terms of producers and users. The relationships between those countries—Australia, China, South Africa, Europe—these things are, I think, almost a parallel development in terms of the evolution of the energy economy over the 21st century. But what has to be done with coal is that ways have to be found, technological developments have to made whereby the high emissions of CO2 formed by the use of coal can be cut back, and if possible all CO2 is sequestrated so that it provides no additional danger to those we already face from the CO2 in the atmosphere.

Michael Duffy: Ken, I know you’ve got a book rolling off the presses about now called Beyond Oil. How do you see things like natural gas and, indeed, uranium affecting our future energy use?

Kenneth Deffeyes: The situation in North America is tight now on the supply of natural gas, and the NAFTA agreement requires us to honour our historic patterns. So Canada is obligated to export gas to the United States. The United States, oddly, is compelled to export gas to Mexico, even though Mexico is a very oil-rich country; they’ve not much focused on natural gas. And in the case of North America, we can’t bring on imports by refrigerated tankers as fast as we would like, so we’re facing a squeeze already in North America. Now, worldwide, I agree, the gas situation is more optimistic, and…I’m not sure it’s quite as optimistic as Peter is saying, but it’s more optimistic, and one of the interesting things is that gas fields in western Siberia are almost as large a fraction of the world’s gas as the Middle East is of the world’s oil. So it’s a tremendous resource and Europe is benefiting from the fact that the Russians are exporting natural gas to supply a lot of Europe.

Michael Duffy: You’ve both given us an enormous amount to think about and I thankyou very much for coming on Counterpoint. Kenneth Deffeyes is a geologist at Princeton University. His book, Hubbert’s Peak is published by Princeton University Press, and his forthcoming book from Farrer Straus is called Beyond Oil. Peter Odell is an economist at the Erasmus University in the Netherlands, and he’s the author of Why Carbon Fuels Will Dominate the 21st Century’s Global Energy Economy, and that’s from Multiscience Publishing.

Guests on this program:

Peter R. Odell
author, Why Carbon Fuels Will Dominate the 21st Century’s Global Energy Economy (Multi-Science Publishing, Brentwood, UK)

Kenneth S. Deffeyes
author, Hubbert’s Peak: The Impending World Oil Shortage (Princeton University Press)
geologist, and Emeritus Professor Princeton University


Hubbert’s Peak
Author: Kenneth Duffeyes
Publisher: Princeton University Press

Why Carbon Fuels Will Dominate the 21st Century’s Global Energy Economy
Author: Peter Odell
Publisher: Multi-Science Publishing, Brentwood, UK

Michael Duffy
Janne Ryan

© 2005 Australian Broadcasting Corporation