Producers Move to Debunk Gloomy 'Peak Oil' Forecasts [WSJ]
Saudis, Exxon Say Supplies Are Ample as Policy Makers Begin to Weigh Substitutes
By BHUSHAN BAHREE in Vienna and JEFFREY BALL in Dallas
September 14, 2006; Page A2
Leading players in the petroleum industry, including Saudi Arabia and Exxon Mobil Corp., are aggressively arguing that plenty of crude oil remains for world consumption, in an effort to counter critics who contend crude output is about to plateau.
That argument, known as peak-oil theory, has provided intellectual backing for the boom in crude prices and sowed doubts among some policy makers about crude's long-term reliability as an energy source. Such doubts, coupled with concern over sky-high prices, have added impetus to the search for oil substitutes -- including in Washington, where President Bush this year declared the U.S. "addicted to oil" and sparked a boom in interest in ethanol.
Some in the industry are keen to fight the threat posed by such fears.
Yesterday, Abdallah S. Jum'ah, chief executive of Saudi Arabian state-owned Saudi Aramco, the world's largest oil company by production, argued during a speech in Vienna that the world has more than a century's worth of crude left at current production rates. His talk followed similar remarks by a senior Exxon executive this week. Spokesmen for Exxon and Aramco said they aren't coordinating their remarks.
The belief that the Earth is running dry of oil is just one factor supporting crude prices. Oil supplies -- constrained by underinvestment when crude prices were lower -- have increased more slowly than demand, leading to a thin margin of spare pumping capacity and higher prices.
Demand has shown signs of slowing and prices have fallen from a nominal all-time high of more than $78 a barrel in July, though, adjusted for inflation, oil reached as high as $99.21 in April 1980. In New York yesterday, crude-oil futures rose 21 cents to settle at $63.97.
In a sign that oil-supply concerns are gaining currency, the Department of Energy has asked the National Petroleum Council, an oil-and-gas-industry research group, to investigate peak-oil claims. The council launched a study that includes different industries and environmental groups and appointed Lee Raymond, retired Exxon chief executive, as the study's chairman. It will survey existing studies and examine why they differ on how much oil and gas the world holds and what the response should be.
At an OPEC seminar yesterday, Mr. Jum'ah of Aramco said the world had produced only about one trillion barrels, or about 18%, of the earth's producible potential of 5.7 trillion barrels of oil. "That fact alone should discredit the argument that peak oil is imminent, and put our minds at ease concerning future petroleum supplies," he said. The remaining 4.7 trillion barrels should be enough to last more than 140 years at current output rates, he said.
Saudi Arabia, with a quarter of the world's proven crude reserves, has an interest in countering developments that would reduce demand. "If you are sitting on the world's biggest oil deposits, you would want to prevent the premature development of alternatives to oil," said Herman Franssen, president of International Energy Associates, a consulting firm in Bethesda, Md.
In an interview, Mr. Jum'ah said the Saudis "don't mind the development of alternatives to oil," because increasing energy demand means the world needs supplemental energy sources. But he objected to government subsidies and other supports that lead people to believe that alternatives like ethanol are a "panacea" that is "around the corner," he said.
Still, 3.5 trillion of the roughly 4.7 trillion barrels of oil Mr. Jum'ah is counting on will depend on the development of new technologies. "I believe we will eventually tally about one trillion barrels each from yet-to-be-discovered fields and higher recovery rates" from existing fields, he said in the speech. He also factored in 1.5 trillion barrels from nonconventional sources, such as Canadian tar sands.
Mr. Jum'ah's speech came two days after Exxon's Australia chief, Mark Nolan, told an industry conference in Adelaide, Australia, that "the end of oil is nowhere in sight." Mr. Nolan cited a U.S. Geological Survey estimate of more than three trillion barrels of conventional recoverable oil resources, of which one trillion barrels has been produced. Conservative estimates of heavy-oil and shale-oil resources push the total to four trillion barrels, while a 10% increase in recoverability will deliver an extra 800 billion barrels, Mr. Nolan said.
An Exxon spokesman said the company has long been making a similar argument.
Even mainstream analysts see a practical limit to supply. "The international petroleum system will be hard-pressed to produce more than 100 million barrels a day, given current technology," said J. Robinson West, chairman of consulting firm PFC Energy. Demand, expected to reach 84.8 million barrels a day this year, could rise to that level by about 2015, based on estimates for a different period by the International Energy Agency.
The industry says that while oil is finite, the known pool of obtainable oil grows as technology improves.
"I think there's a lot of misconceptions of what peak oil is," Mr. Raymond, who is leading the U.S. oil study, said in an interview last week. "The resource base is continually changing, driven by economics and technology." But he said his views won't dictate the study's results. "I may learn something."
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