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The peak oil crisis: A tale of two reports

In the last few days, two important reports on the prospects for world oil production were "released." While these reports reach diametrically opposite conclusions, each of them, in its own way, is likely to make a contribution to the debate over just when the economic troubles occasioned by the peaking of world oil production will occur.

The first of these reports sounds like a rather routine "Medium-Term Oil Market Report" issued by the International Energy Agency (IEA) in Paris. The content of the report, however, is anything but routine, for the IEA, which for years has issued a steady stream of "all is well" reports, makes an about face and comes within a hairsbreadth of actually saying world oil production will peak in the next few years.

The "conversion" of the IEA has been coming for several months now. Since early spring, their monthly reports have expressed concern that last fall's 1 million barrels a day OPEC production cut had gone too far and, unless reversed, there would be serious price increases and perhaps shortages later this year.

In the medium term (5-year) report issued earlier this week, the IEA takes a hard look at world economic growth, the consequent demand for oil, and the likely growth in oil and gas supplies and concludes that something has got to give.

In short, there simply will not be enough production of oil to permit the world's economy to grow at 4.5 percent a year for the next five years, for this would imply worldwide oil consumption increasing to 95 million barrels a day from the current 86 million. According to the IEA's calculations of rates of depletion combined with likely new oil production, such an increase is unlikely to happen.

This way of thinking is a major change for the IEA. For the last 30 years, they have simply calculated the oil output required to support whatever level of economic growth looked likely and posited that the world's oil industry would pump oil at a rate sufficient to cover the demand. Case closed!

The realism of "new" IEA is truly refreshing. For example, they now expect there will be no net increase in oil production capacity in Iran, Iraq, and Venezuela in the next five years, and the oil production currently shutdown by insurgents in Nigeria will remain that way for the foreseeable future.

On the other side of the debate, we have an announcement by the National Petroleum Council that the peak oil study the Secretary of Energy requested nearly two years ago will be released next week. The National Petroleum Council, which is made up mostly of CEO's from the oil industry, was set up by President Truman in 1946 to advise the government on important issues related to petroleum.

Although the report is not yet available, a summary of the key conclusions has already been leaked to a wire service, so we have a pretty good idea what the report will say. [Reuters article] I am sorry to say the report is already starting to sound like a major disservice to the U.S. government, the Congress, the American people and indeed the whole world, for it dismisses the notion of peak oil from the start and goes on to whine about why times will be tough for the oil industry.

In a draft letter to Bodman, the council says, "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically."

So what is going on here? Why are we getting completely opposite conclusions about a subject of unimaginable importance: the future of world oil supplies?

The IEA's new religion is easy to understand. The organization is responsible for supplying energy information to 26 member countries, only one of which is the United States. The preponderance of the IEA's members are in Europe which so far are taking global warming and peak oil far more seriously than we are in the United States. Oil production from Europe's North Sea fields is declining rapidly so that shortly their economies will be dependant on Russia for energy. In this environment, the IEA got serious very quickly.

In America, however, we still have another set of priorities, for the full weight of the tightening world oil situation has not yet had a serious impact on the American economy. The reality and implications of peak oil are surely understood by the White House, the Department of Energy, and in the board rooms of the major oil companies. The problem is that the government is in no position to deal with forces that could be unleashed by an admission that a century of happy motoring is about to come to an end and some of the most serious economic problems the country has ever faced lie just ahead.

Given Iraq, immigration, Congressional investigations and what have you, the administration is clearly in no position to cope with the fallout of peak oil. The authors of the NPC report, the CEO's of America's major oil companies, can do little about the situation in Baghdad; they can do nothing about immigration; nor can they prevent the Democrats in Congress from investigating the administration endlessly. They can, however, do their best to prevent peak oil from attracting any more attention than it has already. This is obviously the path they have chosen.

If the preliminary indications are right, the NPC, with the acquiescence of the Secretary of Energy and the White House, has chosen to ignore peak oil and its implications for the time being - or at least for the next 18 months of the current administration.

In a sense, the NPC report is a tacit verification that peak oil is indeed real and imminent, for if the secret vaults of Exxon or Conoco held solid information to the contrary, the NPC would be shouting it from the rooftops.

Editorial Notes: More on IEA report at Energy Bulletin: Peak oil rumblings - July 9 The IEA report and peak oil Reuters article on the leaked NPC report: 'Accumulating risks' to world energy supply-US NPC -BA

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