One of the world’s leading energy analysts yesterday called for an independent assessment of global oil reserves because he believed that Middle Eastern countries may have far less than officially stated and that oil prices could double to more than $100 a barrel within three years, triggering economic collapse.
Matthew Simmons, an adviser to President George Bush and chairman of the Wall Street energy investment company Simmons, said that “peak oil” – when global oil production rises to its highest point before declining irreversibly – was rapidly approaching even as demand was increasing.
“This is a new era,” Mr Simmons told a conference of oil industry analysts, government officials and academics in Edinburgh. “There is a big chance that Saudi Arabia actually peaked production in 1981. We have no reliable data. Our data collection system for oil is rubbish. I suspect that if we had, we would find that we are over-producing in most of our major fields and that we should be throttling back. We may have passed that point.”
Mr Simmons told the meeting that it was inevitable that the price of oil would soar above $100 as supplies failed to meet demand. “Demand is pulling away from supply…and we have to ask whether we have the resources that we think we do. It could be catastrophic if we do not anticipate when peak oil comes.”
The precise arrival of peak oil is hotly debated by academics and geologists, but analysts increasingly say that official US Geological Survey estimates that it will not happen for 35 years are over-optimistic.
According to the International Energy Agency, which collates data from all oil producing countries, peak oil will arrive “sometime between 2013 and 2037”, with production thereafter expected to decline by about 3% a year.
While oil from conventional sources is expected to decline, more and more is expected to come from “unconventional” supplies found in oil-rich rocks, especially in the US and in deposits of tar found in Venezuela.
The former UK energy minister Brian Wilson, a supporter of both nuclear power and renewables, said that Britain would be unwise to rely completely on importing gas from politically sensitive countries as North Sea reserves declined.
“Seventy percent of our electricity by 2020 will come from gas and 90% of that gas will be imported…We should be planning for an indigenous energy future,” he said.
But he added that global reserves were not overestimated. “The concept of peak oil needs to be taken very seriously indeed, [but] my working assumption is that both global oil and gas reserves continue to be significantly underestimated.”
But other oil analysts argued strongly that a major financial crisis could occur as soon as 2008. Chris Skrebowski, of the Energy Institute in London, which monitors all major oil discoveries and developments, said depletion of global conventional oil reserves was running at about 5% a year, according to Exxon figures.
“Norway, Venezuela, the UK and Indonesia and many others are all declining production. I expect Denmark, Malaysia, China, Mexico and Brunei to peak within three years…I estimate that we have, at best, 32 months before [the crisis] hits.
Mr Skrebowski predicted, using UK government figures, that production from the British sector of the North Sea would halve within 10 years. “We have a congenital bias to optimism…12 fields in the North Sea basin are seeing rising production, but they are mostly small. Overall, production peaked in 1999. It fell 10% last year and 8.5% the year before,” he said.
“Oil will not run out for many years,” said Colin Campbell, former vice-president of Fina and chief geologist of the oil giant Amoco. “The information governments give is grossly unreliable. Oil companies report less than they discover for pragmatic reasons, but Opec countries have overestimated what they think their reserves are.”
He said many Middle Eastern Opec countries, including Iraq, Saudi Arabia and Kuwait, had all significantly lifted their estimated reserves in the late 1980s to benefit from larger quotas, but they had not discovered new fields or changed their estimates since then.
“The real issue is not the actual date of peak production – which I believe is next year – but what happens during the decline of production.
“I think we are in for an extended period of restricted economic activity. I do not think that we will adjust very smoothly,” he said.