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Why the world is not about to run out of oil

...Now comes what appears to be the most powerful threat to oil's supremacy in a century: growing fears that the black gold is running dry. For years a small group of geologists has been claiming that the world has started to grow short of oil, that alternatives cannot possibly replace it and that an imminent peak in production will lead to economic disaster. In recent months this view has gained wider acceptance on Wall Street and in the media. Recent books on oil have bewailed the threat. Every few weeks, it seems, “Out of Gas”, “The Empty Tank” and “The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel”, are joined by yet more gloomy titles. Oil companies, which once dismissed the depletion argument out of hand, are now part of the debate. ...

But is the world really starting to run out of oil? And would hitting a global peak of production necessarily spell economic ruin? Both questions are arguable. Despite today's obsession with the idea of “peak oil”, what really matters to the world economy is not when conventional oil production peaks, but whether we have enough affordable and convenient fuel from any source to power our current fleet of cars, buses and aeroplanes. With that in mind, the global oil industry is on the verge of a dramatic transformation from a risky exploration business into a technology-intensive manufacturing business. And the product that big oil companies will soon be manufacturing, argues Shell's Mr Van der Veer, is “greener fossil fuels”.

The race is on to manufacture such fuels for blending into petrol and diesel today, thus extending the useful life of the world's remaining oil reserves. This shift in emphasis from discovery to manufacturing opens the door to firms outside the oil industry (such as America's General Electric, Britain's Virgin Fuels and South Africa's Sasol) that are keen on alternative energy. It may even result in a breakthrough that replaces oil altogether.

To see how that might happen, consider the first question: is the world really running out of oil? Colin Campbell, an Irish geologist, has been saying since the 1990s that the peak of global oil production is imminent. Kenneth Deffeyes, a respected geologist at Princeton, thought that the peak would arrive late last year.

It did not. In fact, oil production capacity might actually grow sharply over the next few years (see chart 1). Cambridge Energy Research Associates (CERA), an energy consultancy, has scrutinised all of the oil projects now under way around the world

...It is true that the big firms are struggling to replace reserves. But that does not mean the world is running out of oil, just that they do not have access to the vast deposits of cheap and easy oil that are left in Russia and members of the Organisation of Petroleum Exporting Countries (OPEC). And as the great fields of the North Sea and Alaska mature, non-OPEC oil production will probably peak by 2010 or 2015. That is soon—but it says nothing of what really matters, which is the global picture.

...If the world oil supply peaked one day and then fell away sharply, prices would indeed rocket, shortages and panic buying would wreak havoc and a global recession would ensue. But there are good reasons to think that a global peak, whenever it comes, need not lead to a collapse in output.

Editorial Notes: Special report just appearing on the Economist website and in the latest issue. The article is normally viewable by subscribers-only. Occasionally, Economist articles are sponsored, so anyone can see them. UPDATE: Currently the article seems to be open access: www.economist.com/finance/displaystory.cfm?story_id=6823506 Despite the usual cockiness of the Economist headline, the arguments against peak oil are sounding less and less confident: the CERA study and the ancient USGS study are dutifully trotted out, but peak oil ideas and spokespeople are given a hearing. The writer of the report, Vijay Vaitheeswaran, spoke on a recent television program, "Great Decisions". (transcript available). Angry rebuttal from Jerome a Paris (The Economist denies peak oil):
The Economist has clearly chosen its side in the debate about peak oil, and their arguments are as follows:
  • CERA says we're not running out of oil
  • the Saudis say they are not running out of oil
  • we'll "manufacture" oil (from gas, oil sands, and ethanol)
Their conclusion, in another article:
Western oil firms are beginning to address their difficulty in finding oil by manufacturing fuel instead. Man-made fuels, such as ethanol derived from plants, or diesel conjured from coal and gas, hold out the promise of secure and almost unlimited supply.
...This is an intellectually dishonest piece. No arguments, beyond quoting a few partial or hardly disinterested sources of dubious value. No acknowledgement (or only of the very partial and limited kind) of the arguments of their opponents.The question is: why?
Reader JB says:
The following link takes you to the text of the Economist's 1999 cover story ("$5 Oil"), if you want to compare the 2006 article to the 1999 article. It could be a case of interesting timing, separated by seven years: www.casi.org.uk/discuss/1999/msg00181.html [the article predicts low oil prices for the foreseeable future]

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