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The peak oil crisis: Our Government Forecasts the Future

Last week the US Government released the International Energy Outlook 2006 (IEO). As it has been doing annually since 1985, the Energy Information Administration uses this document to expound its view of world energy supply and demand for the next 25 years.

Unfortunately, however, from a peak-oil-is-imminent perspective, one is forced to say that many of this report's projections are so far from reality that the EIA must be talking about some other world. Early on the report makes it clear the government is not buying into imminent "peak oil." While acknowledging that oil prices have been climbing rather unexpectedly in recent years, the report places the blame on the lack of sufficient investment by the "oil rich" countries to increase production and not on any shortage of supply.

The authors assume that "for the period out to 2030, there is sufficient oil to meet worldwide demand." "Peaking of world oil production is not anticipated until after 2030." They also assume there will be no long-lasting disruptions to the steady growth of oil and other forms of energy production for the next 25 years. The report says flat out, "A business-as-usual oil market environment was assumed. Disruptions in oil supply for any reason (war, terror, weather, geopolitics) were not assumed."

For many of us, these statements alone are enough to question whether we are dealing with a serious effort to project the future of the world's energy situation, or whether the projections contained in this report have a foundation in reality.

The fundamental conclusion of the report is that world oil production is to grow from the current 85 million barrels a day (b/d) to around 98 million b/d by 2015 and thence to 118 million b/d in 2030. One way the EIA gets to such spectacular numbers is to posit very large growth in unconventional oils— ethanol, biodiesel, tar sands, and coal to oil conversion. These are to grow by 10 million b/d in the next 25 years and are to account for nearly 10 percent of total world "petroleum" supply.

To be fair, the EIA's usual optimism is gradually subsiding. In last year's report, the 118 million b/d of oil production was to be attained in 2025, but now this has slipped to 2030. In contrast to the EIA projection, most people who have tried to calculate when, and at what level, world oil production will peak, come out somewhere between 85 and 90 million b/d and not much higher. For them, the notion that world oil production will smoothly move on up by an additional 30 million b/d (even if a lot of this is to be "unconventional" oil) is a fantasy.

The underlying assumption that the administration's policies are working like a charm, the Middle East is not on the verge of devolving in chaos and that unprecedented period of peace and economic prosperity will endure for the next 25 years does certainly not square with the daily news.

The report, of course, discusses and projects the future of coal, natural gas, and electricity production in addition to the sections on oil. There is also a section on energy-related carbon dioxide emissions and their relationship to the Kyoto Protocol. Internally these may all be soundly based projections continuing historical trends. The fatal weakness is the oil projection and their underlying assumptions.

Given the basic assumption of peace, prosperity and 118 million b/d of oil production to sustain them, much of the report becomes an exercise in trying to find ways that world energy production can meet this goal. In a number of instances, the resulting country by country projections have countries that are already well into depletion either halting the decline or increasing production. Alternative projections that oil could either drop to a steady $30 per barrel or take another 25 years to work up to $95 per barrel are obviously unrealistic.

The preamble to the IEO says that it is published pursuant to the Department of Energy Organization Act of 1977 and is intended to be used by "international agencies, Federal and State governments, trade associations, and other planners and decision makers." Given the preposterous assumptions the report posits and the reams of evidence that world oil production is almost certain to peak well before 2030, this report does not appear to be particularly useful for planning anything beyond a few years from now.

Even if the coal, natural gas, and electricity numbers have some validity, the precipitous decline in the availability of oil is almost certain to engulf other sources of energy in ways that are unknowable. If ways are found to quickly substitute other sources of energy for oil, then the demand for these resources will obviously explode in an unpredictable fashion. Should a major economic slump occur, then the demand for other sources of energy could melt with the GDP. It is all inter-related in complex and admittedly difficult-to-forecast ways.

Returning to the question as to whether the IEO for 2006 is a useful or dangerous document, I was struck by a conclusion in the sub-head to chapter 1. "Energy resources are thought to be adequate to support the growth expected through 2030."

This conclusion epitomizes the core of the contention between those who believe peak oil is both real and imminent and those who are still in denial. Those who understand peak oil believe that a major break point, change, paradigm shift based on the end of cheap freely available oil is imminent. The others are not yet ready or willing to entertain this thought.

What do you think? Leave a comment below.

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