Peak oil supplies- the contrary view

By Neil Behrmann

November, 2007:- Global oil supplies should satisfy growing world demand well into the century, according to Duncan Clarke, an energy consultant.

His book, "The Battle For Barrels" (Profile Books) contends that proven and potential reserves of oil and potential reserves are more than adequate. They are in the Middle East, Africa, South America, Canada, China, Russia, Madagascar, the North Sea, Persian Gulf and Asia. There are several weakness in this sanguine argument, however. First, most of the world's oil supplies are produced by unstable regimes. Secondly, environmental concerns in Canada and elsewhere hinder new supplies.  Supply disruptions and rampant speculation caused oil to surge from around $20 a barrel early 2002 to almost $100. Alternative energy is the answer.

Contrary view to Peak Oil Theory

Bulls have used "Peak Oil Theory" to justify current high prices.  Clarke, who is chairman and chief executive of Global Pacific Partners, an oil consulting firm, is dymetrically opposite so called Peak Oil exponents. They include M. King Hubbert, the late American geophysicist, who predicted the decline in American oil fields and Colin Campbell, a geologist. The Peak Oil school believes that energy companies will have to lift an increasing volume of oil from reserves to meet consumption. Global reserves of oil are thus being depleted and oil production will peak and then decline between the years 2010 and 2020, they forecast. The inevitable surge in prices will disrupt the global economy.

Clarke contends that this view is far too gloomy. Historic forecasts of declining global oil supplies have proved to be wrong, he writes. Instead oil production has risen in tandem with demand and new discoveries have raised estimates of global reserves. In the seventies, when there was an oil crisis, major energy companies predicted declines in reserves and production. The opposite occurred, he writes. Crude oil prices which hit $40 a barrel during the Iranian revolution of the late seventies, slumped below $10 a barrel by the mid eighties.

The book doesn't provide adequate statistics to back Clarke's view. But BP Oil Statistics show that proven global oil reserves have increased from 770 billion barrels in 1985 to 1,200 billion barrels at the end of 2005. Worldwide oil reserves, estimated at 32 years production in 1982 rose to 42 years by 1989 and are currently around 41 years, according to BP's estimates. Proven oil reserve estimates are 17 percent higher than 1995 and output is 19 percent in excess of levels seen in the mid nineties.

Peak Oil proponents maintain that national and corporate global reserve estimates seriously inflate the volume of oil available to meet the demands of North America, Europe and the fast growing consumption of China, India, Japan, the rest of Asia and other nations around the globe. Industries, motorists and airlines are on an unsustainable oil binge, they warn.

Clarke, however, contends that history will repeat itself. Higher oil prices, new technologies and exploration in previously restricted areas are likely to lead to more reserves and potential oil production. Eni, the Italian energy company, for example, estimates that some 2,000 billion barrels of recoverable reserves are not yet classified as proven. They could in time become commercially exploitable because of higher prices and improved technology.

Unstable regimes and environment cause supply disruptions

Regardless of the debate about future global oil resources, governments, analysts and traders fret that the nations in which control most of the world's oil, are either unstable, undemocratic or corrupt. Some producers, notably Iran are hostile. Its intention to obtain a nuclear bomb is encouraging Saudi Arabia to do the same. Iraq, another major producer, is on the brink of civil war. According to BP, the Middle East accounts for almost two thirds of proven reserves and almost a third of output.

African oil producers, which account for 9.5 percent of global reserves include problematic nations, Libya, Angola and the Sudan. Nigeria, a major producer, experienced a terrible civil war in the late sixties. Almost 9 percent of reserves are in Latin America and Venezuela, the biggest producer, is bugged by strikes and a leader who leans towards Communism. Russia, the second largest oil producer after Saudi Arabia with an estimated 6 percent of world reserves, has been using its gas resources to blackmail neighbours.

Known reserves and production of stable democratic nations, notably the US, Norway, UK and Mexico have unfortunately peaked, according to BP. Stringent environmental controls have created no go areas for oil companies in Canada.

New oil fields and refineries are exceedingly costly. In a major study in 2003, the International Energy Agency estimated that $3 trillion or over $100 billion a year would be needed for investment in obsolete and new fields and refineries until the year 2030. Costs have since increased.

Clarke's optimistic view of global oil reserves and production may turn out to be correct. But the weakness in his plentiful supplies argument is that consumers will continue to be bugged by major supply disruptions from time to time. The Battle for Barrels takes place alongside the battle for alternative energy.

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