OTC 16861

Timing is Everything: The Information Crisis on Future Oil Supply

Bob Williams/Oil & Gas Journal

Copyright 2004, Offshore Technology Conference

author developed on the theme of Future Energy Supply in the
This paper was prepared for presentation at the Offshore Technology Conference held in Oil & Gas Journal in summer 2003.1 While there is a spectrum
Houston, Texas, U.S.A., 3–6 May 2004.
even among centrist positions, the debate remains highly
This paper was selected for presentation by an OTC Program Committee following review of
information contained in an abstract submitted by the author(s). Contents of the paper, as
polarized and even rancorous at times.
presented, have not been reviewed by the Offshore Technology Conference and are subject to Unfortunately, as the debate seeps into the mainstream
correction by the author(s). The material, as presented, does not necessarily reflect any
position of the Offshore Technology Conference or its officers. Electronic reproduction, consciousness, it is exactly this sort of polarization that has
distribution, or storage of any part of this paper for commercial purposes without the written tremendous appeal to the mainstream media and to political
consent of the Offshore Technology Conference is prohibited. Permission to reproduce in print
is restricted to an abstract of not more than 300 words; illustrations may not be copied. The idealogues. It is possible that crucial decisions on this issue
abstract must contain conspicuous acknowledgment of where and by whom the paper was
presented. will be made by policymaking entities and by consumers that
will have a tremendous bearing on the industry’s prospects,
much as was the case in the wake of the 1970s oil price spikes
Abstract
and the environmental disasters involving the 1969 Santa
This paper will examine the highly polarized debate over
Barbara Channel oil spill and the 1989 Exxon Valdez tanker
the prospect of an imminent peak and precipitous decline in
oil spill. Given the apocalyptic scenarios offered by the peak-
global oil production, which has seen a sharp resurgence in the
oil theory proponents, however, these choices could entail
petroleum industry in recent years. Coming from a journalist’s
much more far-reaching impacts on the industry, including its
standpoint of neutrality, this paper will assess the impacts of
very survival.
both the depletionist and antidepletionist scenarios for future
So it follows that it is imperative that the petroleum
oil supply on the petroleum industry and on global society.
industy places a top priority on arriving at some sort of
consensus on the peak-oil issue—sooner rather than later.
Introduction
There is no aspect of the energy industry—indeed, the future
The highly polarized debate over the prospect of an
global economy—that will not be affected by this debate if it
imminent peak and precipitous decline in global oil production
gains sufficient momentum in public discourse. Long-term
has seen a sharp resurgence in the petroleum industry in
planning by oil and gas company management would hinge on
recent years.
which side of the debate a firm’s executive leadership
This is no longer a mere academic exercise, as it has been
comes down.
in the past. The claims of those who believe in an imminent
Rather than weighing in on one side or the other in the
peak-oil scenario are gaining greater credence among media
peak-oil debate as to whether or not an oil supply crisis looms,
and government circles, pulling the debate into the mainstream
we would advance here the idea that a crisis already exists: a
of society. In this latest incarnation of the debate, the
data crisis that must be addressed soon and in a
depletionist school is garnering wider attention because of the
comprehensive manner. Resolving the data uncertainties and
debate’s currently topical linkages to the volatile geopolitics
concurring on a common methodology for the quantification
of war and terrorism and concerns over the postulated
of future oil supply are critical to informing a debate that
catastrophic climate change caused by anthropogenic
threatens to spin out of control and thus serve as a political
emissions of greenhouse gases.
tool to bludgeon the oil and gas industry into early extinction.
Energy security and environmental issues for decades have
Beyond the mere viability of the oil and gas industry, there
been significant drivers of government policymaking affecting
is an even greater responsibility for clarifying and adding to
the oil and gas industry in major ways. Thus it is apparent that
the knowledge of the size, recoverability, recovery cost, and
the peak-oil debate will factor into future decisions by
timing of exploiting the world’s remaining ultimate
government bodies and by the public at large in ways that
recoverable resources (URR) of hydrocarbons. The
could have extreme impacts affecting even the future viability
Hydrocarbon Age has existed for more than a century, and
of the petroleum industry.
today hydrocarbons still are the foundation of the global
Therefore, it is critical to assess the impacts, in terms of
economy. Hydrocarbons are the bedrock upon which the
public acceptance, of both the depletionist and antidepletionist
world’s developed economies subsist and prosper. Yet rapidly
scenarios for future oil supply on the petroleum industry and
growing developing nations are struggling to lift their
on society overall.
populations out of poverty and into a prosperous middle class
However, there is nothing approaching consensus on the
such as the developed nations enjoy. Low-cost energy is the
peak-oil debate, as was ascertained in a series of articles this
lever by which that will happen. And hydrocarbons remain the
2 OTC 16861
world’s dominant energy source, providing a relatively low-
cost, fungible means of underpinning the viability of most of
society’s functions—from transportation to power to heating,
cooling, irrigation, and other aspects of consumers’ daily lives.
Because the global economy depends so heavily on access
to low-cost oil, the prospect of an imminent peak in oil
production suggests oil prices spiking to levals untenable for
any economy. While that would strengthen the case for
draconian conservation measures and an accelerated shift to
other forms of energy, such solutions themselves would cause
a massive economic dislocation as well.
There is no greater moral imperative than lifting the
billions of the world’s poor out of the depredations they suffer
daily. This task cannot be accomplished without low-cost
energy, and oil and gas currently top the list of low-cost
energy sources that still have broad public acceptance for
expansion. The industry must resolve the oil supply data crisis
so that the world has a clear view of what steps are needed to
help the desperately poor make the transition to whatever
energy future lies ahead.
Depletionist view
The controversy over oil depletion has its roots in a bell
curve developed by a Shell Oil Co. geoscientist, M. King
Hubbert, who used it to model annual production and ultimate
recovery of oil and gas in the US (Fig. 1).
Peak-oil theory advocates say that Hubbert’s curve was
validated when he correctly predicted the peak of US Lower
48 production in 1970. He subsequently attempted the same
exercise for Lower 49 natural gas. Since then, however, his
detractors contend that he consistently understated resource
potential for both oil and gas in the Lower 48 because of
methodology flaws.2
Nevertheless, a number of petroleum scientists have taken
up Hubbert’s banner and sought to improve on this models
and to correct errors in his methodology while extrapolating
them to the world at large. These Hubbert followers use a bell
curve to demonstrate exponential growth and decline in
production of a resource, extrapolating via graphs peak and
decline by plotting the URR against the historical record
of depletion.
One prominent peak-oil theorist, Jean Laherrère, retired
deputy exploration manager for Total SA, in 2002 projected
that ultimate oil recovery will total 3 trillion bbl, with the total
of all petroleum liquids production peaking at 90 million b/d
around 2010.3 Others in the depletionist camp have the peak
coming sooner and smaller, with URR at 2 trillion bbl and half
of that already produced; some contend the peak in
conventional petroleum liquids has already occurred. Colin
Campbell, Laherrère’s colleague and a cofounder of the Oil
Depletion Analysis Center in London and the Association for
the Study of Peak Oil, based in Uppsala, Sweden, puts the
peak in 2010 as well, but at a level of 83 million b/d
(Tables 1-2).4
The peak-oil theory advocates’ stance can be summarized
in this comment by Campbell:
Depletion also has built a chasm between the Natural
Scientist, who observes nature and applies its immutable
physical laws, and the Flat-Earth Economist, who thinks that
investment creates resources under ineluctable laws of supply
and demand.5
Antidepletionist view
On the other side of the debate, the antidepletionist school
holds that the peak-oil theorists’ research is inconclusive, is
riddled with flawed methodologies, and is overly selective and
even opaque with regard to the data used.
The antidepletionists point to the many failed forecasts of
imminent depletion of the past, including fairly recent ones by
Hubbert’s intellectual heirs, and question why there is no
accountability for these failed forecasts.
Thomas Ahlbrandt, world energy project chief with the US
Geological Survey in Denver, points out that even some
mature areas, such as the UK North Sea, have repeatedly
defied forecasts of a bell-curve-style decline. Examples
abound of oil fields that do not exhibit stable production
curves and in fact feature production curves that are
asymmetric with a long and irregular tail (Fig. 2).
The opponents of peak-oil theory also contend the bell-
curve models don’t take into account many of the dynamic
economic and poltical variables that drive oil supply changes.
Sarah Emerson, managing director of Energy Security
Analysis Inc., Wakefield, Mass., put this view as follows:
The geologists who present the resource scarcity
argument tend to ignore changes in the economic context. For
example, foreign investment laws can change in countries with
large reserves and limited access to capital or technology.
This means places where we never expected development (or
expected slow development) suddenly open up….New-found
access to capital and technology [in these countries] requires
a total reappraisal of resource development.6
The antidepletionists don’t claim that production won’t
peak and decline, just that the peak is likely to be more of a
protracted plateau, followed by gently declining slope. The
difference in their view stems from the application of
interconnected market factors, principally demand and price.
An example is the scenario developed by the Centre for
Global Energy Studies, London, which concluded in 2003 that
global conventional oil production will track oil demand
growth to 2020 and decline along a moderate slope thereafter:
Because of shut-in crude oil production (almost all of
which is in the Middle East), we think the world’s crude oil
output can continue to grow at the rate at which oil demand is
likely to grow (1% per annum) until at least 2020, peaking at
around 81 million b/d (compared with around 68 million b/d
in 2003) under the 2 trillion URR case. Thereafter,
conventional crude production will decline gradually,
reaching 33 million b/d by 2040, allowing unconventional
hydrocarbon liquids to step in. Oil prices need not be
sustained at high levels until 2020, but after that date, it is
more than likely that oil prices will trend upwards.7
Depletionist view questioned
Efforts to systematically quantify the world’s hydrocarbon
URR and project future supply peak and decline are laudable.
No resource-based industry can plan adequately without the
OTC 16861
ability to inventory its core assets for the long term; a path of
unexpected self-liquidation is the result. In one example, if
the petroleum industry hadn’t come along, the whaling
industry would have died out in due course anyway, and the
world would be the poorer for the mass exinction of an
important species of animal.
But the depletionists’ literature seems to focus on rigid
formulae and graphed projections that overlook vast potential
resources outside the scope of the various parameters they use
to apply to the problem. They also have not adequately
addressed evidence that might contradict their basic
assumptions. The original Hubbert bell curve focused
exclusively on the world’s most thoroughly explored and
developed petroleum province, the US Lower 48, and
therefore was able to achieve its predictive success because
the resource was so well-identified. But the Hubbert curve
quickly ran into trouble when it sought to deal with natural
gas, a resource much less well-identified. And as technology
has gained in its ability to identify and quantify these
resources, the estimates of URR and peak production have
been shifted to the upside on a number of occasions. (Fig. 3)
How do the peak-oil theorists reconcile their models with
the phenomenon of reserve growth, which the antidepletionists
contend underpins their plateau concept for future oil
production? By any measure, world conventional oil reserves
increased from 1996 to 2001, according to IHS Energy.8 The
increase is substantially larger when the volume of technically
recoverable reserves of nonconventional hydrocarbons
are included.
Perhaps the biggest failing of advocates of the Hubbert
curve has been their focus on conventional oil resources in
their assumptions about historical production and plotting
future production from that history. The Hubbert view has
traditionally eschewed or limited the role of nonconventional
hydrocarbon resources because of their limited role in
production history. Campbell assigns a number of 300 billion
bbl of URR to tar sands, oil sands, bitumen, and extra-heavy
crudes. Yet current government-sanctioned estimates for
Canada’s potential oil sands reserves total 315 billion bbl, and
Venezuela’s potential Orinoco oil belt potential reserves are
listed at 270 billon bbl alone (Table 3). That does not take into
consideration the vast oil shale resource. Some estimates put
the total global heavy hydrocarbon resource in place at more
than 6 trillion bbl. Assigning a 15% recovery factor to this
resource—as has been demonstrated in Canada and
Venezuela—yields a number comparable to the estimates of
existing conventional proved oil reserves. And this is a
resource not subject to the risked vagaries of exploration. This
is a shallow, already identified resource.
Yet when confronted with this information, depletionists
tend to abandon geology and resort to the mainstays of the
antidepletionist school that they deride: price and technology.
Campbell assigns nonconventional oil a low reserve number
and small production profile because this resource is
expensive and difficult to extract. But in fact oil supply costs
of both Canadian and Venezuelan ultraheavy oil sources,
thanks to new efficiencies and improved technology, have
come within striking range of conventional oil production at
today’s prices (Fig. 4). What would be the potential recovery
3
and production profiles for these supply sources in a peak-oil
scenario of ever-higher oil prices?
Even a huge chunk of conventional oil reserves, mainly in
the Persian Gulf nations that are the world’s biggest oil
reserve holders, is dismissed by some of the depletionists as
“political,” “arbitrary,” or “spurious.” Coming into question
here are the huge jumps in officially estimated reserves by key
members of the Organization of Petroleum Exporting
Countries during the 1980s. The depletionists presume that
these increases were invalid because no new discoveries were
announced. Yet the antidepletionists contend that the falloff in
discoveries was due to government decisionmaking rather than
to a lack of exploration success or opportunity. As petroleum
economist Michael Lynch puts it:
While it is true that global oil discoveries dropped in
the 1970s from the previous rate, this was largely due to a
drop in exploration in the Middle East. Governments cut back
drilling as demand for their oil fell by half, leaving them with
an enormous surplus of unexploited reserves….To an
economist, the drop in exploration reflects optimal behavior:
They do not waste money exploring for something they will not
use for decades.9
Antidepletionist view questioned
The opponents of peak-oil theory have a subtler problem to
overcome. While they consider a broader resource spectrum
and recognize the roles that price, supply, demand, and even
geopolitics play in determining the future as well as the
present supply of oil, there seems to be an underlying laissez-
faire attitude that Colin Campbell has described as believing
that “investment creates resources under ineluctable laws of
supply and demand.”
Investment does in fact, create resources in the sense that it
requires capital to render a raw material producible and then
convertible to a commercial product. But at what price?
ESAI’s Sarah Emerson recently commented that if the
world were really running out of oil, the price signals would
be there to turn mud into gasoline.10 While that may be true,
isn’t that a scenario that we wish to avoid? Can we now all
acknowledge that, whatever number we assign to the world’s
remaining hydrocarbon resource, a rapidly depleting share of
the number will be low-cost oil?
The presumption that price and demand responses to a
perceived shortage would eventually be a corrective to that
shortage may not always be as simple as it appears.
At least one contrarian view holds that sustained oil prices
do not necessarily cause oil demand to decline over the
long term.
UK-based petroleum economist Andrew McKillop
contends that the interaction of oil price and demand signals
have been misread historically. This sets the stage for
perpetually mistaken demand forecasts. McKillop disputes the
conventional notion tht large oil prices will necessarily cut oil
demand and economic growth. This traditional notion holds
that the resulting inflation and other financial instability that
result from a protracted oil price spike can be tamed only
through higher interest rates and even recession, which are
then needed to reduce oil demand in a context where oil
4 OTC 16861
supply is perceived as growing as fast as or faster
than demand.
McKillop instead contends the relationship between oil
prices and demand is more complex than that:
The so-called delinking of oil from economic growth
in the early 1980s was simply the interaction of intense
economic recession and one-time energy savings due to
energy conservation programs and policies engaged in the
1970s aafter the oil shocks of that time.11
Following each oil price shock, says McKillop, there was a
period of retrenchment and then recovery in oil consumption.
In fact, oil demand did rise in the Organization for Economic
Cooperation and Development (OECD) countries after the
1973-73 oil price shock. Thereafter, oil demand generally
tracked OECD economic growth, which was robust in large
part because it was fueled by increased oil consumption.
Conversely, during the 1990s, each fall in economic growth
rates was preceded by a fall in oil prices, and each small
increase in economic growth rates was usually preceded by a
rise in oil prices.
Therefore, it follows that it is the rate of economic growth
that mainly determines the traditional coupling of economic
growth to the rate of oil demand increases, not the reverse,
McKillop contends. The exceptions have come with the most
severe oil price shocks, such as 1973-74, when oil prices shot
up 295% to $55/bbl (in 2003 dollars).
Without a virtual abandonment of a hydrocarbon-based
economy, and the societal upheaval that would entail,
according to McKillop, the world’s economies will in fact
remain coupled with oil demand whatever the price because of
the complete dependence of modern urban-industrial
economies on oil and oil products.
Contributing to a scenario of strong oil demand growth is
the transitioning of newly industrializing countries such as
China and India to the stage of maturing economies. McKillip
contends their oil demand growth will more than compensate
for any recession-induced fall in OECD oil demand. And even
oil price levels of $60-80/bbl (2003 dollars) will cause OECD
oil demand to stagnate or fall, for about 3 years, before oil
demand and economic growth recouple.
If world oil demand recovers, even in a high oil price
scenario, recent projections suggest it could climb to as much
as 90 million b/d by 2030 (Fig. 5). This compares with some
peak-oil theorists’ projections of supply peaking well below
that level as much as two decades earlier.
If this is true, then a price-induced demand corrective may
not suffice to stave off an oil supply crisis in time to allow an
orderly transition to alternative energy sources. Should the
antidepletionists then think about recalibrating their
expectations for oil demand and supply in the context
of price?
Pressure for change
Apart from concerns about oil supply, there is growing
pressure to reduce dependency on oil in the world.
Geopolitical concerns have been cited as a reason to switch
from oil since the crises of the 1970s and have come to the
forefront again in a new century marked by terrorism and
preemptive war. Whatever one thinks about the rationale for
Gulf War II, there is little dispute that a prime justification for
Gulf War I was to protect the most important chokepoint of
the world’s oil supply.
Perhaps a bigger threat to the future of oil consumption is
today’s dominant environmental concern: the purported
anthropogenic warming of the planet to a catastrophic degree,
linked to the burning of fossil fuels. While there is ample
reason to question this hypothesis—and despite the fact that
the principal corrective, the Kyoto Treaty, lies in tatters—it
nevertheless has seeped into the public consciousness and is
already playing a role in government policymaking as well as
consumer and business decisonmaking.
Given the longstanding antipathy among the general public
towards the oil industry, the recurring geopolitical upheaval
over oil supply, and the new environmental bogeyman of
global warming, it is hardly surprising that there is an
increasing clamor for a massive campaign of conservation and
switching to alternative, renewable sources of energy.
The reasons that this initiative has not fully taken hold yet
are twofold: 1) the technology and reliability of renewable
energy use on a widespread commercial basis are not yet
established nor are expected to be for several decades; 2) the
exorbitant cost today is well-established. Consequently, most
projections are that renewables, including hydro, will
command at best a market share of primary energy in the
single digits over the next 25-30 years.
If one accepts the anthropogenic global warming thesis,
then rising dependence on hydrocarbons inevitably will
exacerbate that scenario. According to the Illinois Institute of
Technology’s Henry Linden, deferral of a peak-oil crisis to
2050, owing to an ample hydrocarbon resource base, would
result in the emission of about 1,200 gigatonnes of carbon
dioxide. This thereby would exceed the present consensus
among climate change alarmists, Linden says, that total
anthropogenic emissions of carbon in the form of CO2
equivalents between 1991 and 2100 should not exceed 1,000
gigatonnes in order to limit further global surface temperature
increases to 3.6-4.5º F.12
Whether the petroleum industry accepts the anthropogenic
global warming hypothesis or not is irrelevant. What is
relevant is that there is and will be an increasing linkage in the
public’s mind and in the policymakers’ minds between oil
consumption and global warming.
The expressions of linkage between oil consumption and
global warming and geopolitical upheaval and the quest for
alternative energy sources isn’t merely a campaign by a
handful of activists. Key nations in Europe have already
embarked on such a path to a limited degree, and there is
growing pressure in the US—which consumes a quarter of the
world’s oil—to tread the same path. A new liberal think tank
has been created by former President Bill Clinton’s last chief
of staff, John Podesta, to develop a new intellectual beacon to
lead the Democratic party to regain control of the Congress
and White House. Its centerpiece is dubbed a “New Apollo
Project,” which is designed to wean the US of dependency on
oil through a $360 billion initiative calling for severe
conservation measures, reordering city growth patterns, and
promoting renewable energy projects. Already the leading
Democratic presidential contender, John Kerry, has called for
OTC 16861
a renewable energy-focused “Manhattan Project” along the
same lines.
Herein lies the ultimate defense of the oil industry on this
issue: cost. Renewables have not taken hold in a major way
mainly because their attendant costs, in dollar terms as well as
in societal upheaval owing to the need for new and uncertain
infrastructure, are still too high for the public to accept.
It is with this in mind that we must consider the privations
of the developing world. In an official statement by the World
Energy Council in 2000, the WEC concluded that despite
efforts to reduce energy intensity throughout the world, there
can be no improvement in health, water, food, education, and
many other key aspects of welfare unless modern energy
becomes available to all:
Even if sound policies and measures were quickly
introduced to shift the world’s path of energy development
onto a more sustainable path, no radical changes in energy
trends were likely to occur in the period to 2020. This was too
short a timeframe for new technologies, changes in capital
stock, different attitudes and behavior patterns, and
institutional reforms to have a major impact on a
global scale.13
The WEC estimated that about 20% of the world’s
population consumes 60% of the total energy supply, whereas
5 billion people in developing countries consume the other
40%. The 2 billion poorest use only 0.2 tonnes of oil
equivalent (toe) per capita vs. the 1 billion richest who use 5
toe per capita.
The WEC further stated what should be the No. 1 priority
of all those concerned with energy and environmental issues:
…To extend access to commercial energy services to
the people who do not now have it and to those who will come
into the world in the next two decades, largely in developing
countries, without such access. Their opportunity for eduction,
good health, and individual dignity is in doubt. Progress in
meeting the energy requirements of these roughly 2 billion
people should be regarded as the first test of the sustainability
of our energy development path.
At the same time, the WEC sees oil still commanding a
32% share of the global primary energy mix under a high oil
use scenario to 2050, vs. 34% in 1990, with natural gas
coming in at 19%. Including coal, all fossil fuels combined
would account for 65% of world primary energy under this
scenario, vs. 77% in 1990.
Thus it is inconceivable to imagine the viability of an
energy path that provides an acceptable living standard for the
world’s poor 20 years from now that doesn’t include a
substantial share for oil.
If the peak-oil theorists are correct, that oil would be too
costly to manage that transition to an acceptable living
standard for the world’s poor. And they cannot be shielded by
its effects through subsidy by developed nations. Developed
nations are not economically crippled in a vacuum. A poorer
OECD means shrinking markets for developing nations’
exports as well as evaporating foreign aid.
5
Thus it is also inconceivable that a mandated push to
alternative and largely renewable resources, accompanied
inevitably by their massive new infrastructure changes and
societal upheaval, would not entail costs to the global
economy that far outstrip those of a concerted effort to further
develop even conventional and nonconventional hydrocarbon
resources that are already making a contribution to world
energy supply and utilizing the existing infrastructure and thus
occurring within the existing social fabric.
Yet the pressure mounts to take that path, with the growing
linkage of oil consumption to global warming and geopolitical
concerns. And increasing fears of an imminent peak in oil
production within the next decade or two adds greatly to
that pressure.
Thus the evolving situation warrants that the petroleum
industry make it an imperative to ascertain, with as much
certainty as possible, what is the global inventory of
hydrocarbons and its attendant recoverability and cost
of recovery.
If geologists contend that depletion is a crisis in the
making, would it not be in everyone’s interest to reconcile
their models and conjectures with a truly accurate accounting
of the world’s total hydrocarbon resources?
If petroleum economists concur that oil is indeed a finite
resource and simply contend that its availability, for as long as
it lasts, is a function of price and demand signals, would it not
be in the interest of everyone concerned to ascertain not only
what that ultimate availability will be but also when and at
what cost it can be produced?
This is not a plea for “saving the oil for when we need it,”
as the misguided opponents of ANWR drilling have offered as
a rationale.
Attempts to ration or conserve oil supply, within reason
and free of political motive, have often worked to the
betterment of producers. Unfettered production damages
markets as surely as it can damage reservoirs. Yet overzealous
rationing, especially when driven by politics, can be just as
damaging in the long term as well as the short term; the
transfer of wealth from oil consumers to oil exporters during
the 1970s certainly caused shock waves throughout the global
economy for years.
If there is a consensus, it is that resources are finite. There
will be a peak and a decline; that is the inexorable fate of any
resource, even the sun.
But on a more earthly level, the central questions are the
timing of the peak and the relative steepness of the decline
curve. That’s why it becomes crucial to inventory the
resource—the entire spectrum of the liquid hydrocarbon
resource—and perhaps as a secondary measure to inventory
the global natural gas resource.
Global initiative
It is suggested here that the petroleum industry champion
the creation of a global hydrocarbon inventory initiative.
Such initiative could be under the auspices of neutral
energy-focused organizations such as the World Petroleum
Congress and World Energy Council, in collaboration with
leading scientific organizations such as the National Academy
of Sciences. Such initiative should be free of control by
individual governments or even overarching governmental
6 OTC 16861
organizations and associations to avoid the taint of
political agendas.
And a rigorous approach to a standardized methodology of
defining and estimating reserves and resources must be
employed in this initiative. There is no room for SEC
considerations here. This is where the chief professional
societies and organizations of the petroleum industry, such as
SPE, SEG, AAPG, IAEE, etc., all have important roles to
play. These groups could come to a consensus of what
methodologies to bring to bear on the problem without having
to proceed to a prohibitively costly development mode.
This initiative should involve all the hydrocarbon
producing and consuming nations of the world. As for those
key nations whose hydrocarbon inventories are most at
question, any reluctance to allow transparency could be
quelled by consideration of an unpleasant alternative. For
governments and people to determine their decisions on
affordable energy sources to underpin economic growth, they
must have a clear sense of all the options available for future
energy supply.
As the WEC recommends:
Such economic growth will require the provision of
corresponding energy-related services at an affordable price
with no reasonable expectation to break the linear
relationship between GDP growth and the increase in energy
demand that has been experienced so far.
In other words, uncertainty about long-term supply and
thus price will carry its own price-risk premium, much as we
have seen oil markets respond to protracted upheaval in the
Middle East such as the Iran-Iraq tanker war of the 1980s.
And when geopolitical concerns—with their attendant short-
term supply worries—coupled with long-term global warming
concerns, are layered atop that price-risk premium, these key
hydrocarbon reserve holders run the risk of losing forever their
markets. So it is hoped they soon would find it in their own
best interest to participate in such an initiative.
A global hydrocarbon inventory initiative could ultimately
take the form of an international treaty, not unlike the Kyoto
Protocol. Signatories would agree not only to a thorough
inventory of their hydrocarbon resources but also to
employing a common methodology. The cost of such an
undertaking could be borne by a small per-barrel fee assessed
by either the producing or consuming countries, paid into a
common fund, and apportioned according to the scope of each
nation’s prospective inventory. This is not unlike the money
Saudi Arabia spends each year, without recompense, to ensure
what is effectively the world’s only significant productive
capacity cushion.
Once this inventory is completed, governments and people
will have the requisite information they need to make their
own decisions about which energy path to take, taking all
environmental, geopolitical, and economic parameters
into consideration.
But for now, the peak-oil debate underscores the fact that
they do not now have all the information they need. If a
permanent oil supply crisis is indeed looming, then drastic
steps are needed now to ensure a viable future, especially for
the already deprived billions in the world. If it is not, then that
scenario should also be confirmed to prevent a misguided
effort to push the world into an energy future that is not
economically sustainable, especially for those billions who
already do without.
References
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2. Linden, H.R., “Flaws seen in resource models behind
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4. Campbell, C.J., “The Essence of Oil & Gas
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5. Campbell, C.J., “Industry urged to watch for regular
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6. Williams, B. “Debate over peak-oil issue boiling
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7. Ibid., p. 20.
8. Ibid., p. 26.
9. Lynch, M.C., “Petroleum resources pessimism
debunked in Hubbert model and Hubbert modelers’
assessment,” Oil & Gas Journal, July 14, 2003, Vol.
101.27, p. 38.
10. Ibid., p. 27.
11. Williams, B., “Market Hotline,” OGJ Online, July 21,
2003, www.ogjonline.com.
12. Linden, H.R., “Rising expectations of ultimate oil,
gas recovery to have critical impact on energy,
environmental policy—Part 1,” Oil & Gas Journal,
Jan. 26, 2004, Vol. 102.4, p. 18.
13. World Energy Council, WEC Statement 2000,
“Energy for Tomorrow’s World—Acting Now!”,
Atalink Projects Ltd., London, 2000.