GAO: U.S. needs a peak oil strategy
by U.S. Government Accountability Office
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The following are exact quotes from the GAO Report on Crude Oil (GAO-07-283) that was released March 29, 2007.
Notable highlights are in Bold. Some linebreaks have been inserted to improve online legibility. -Editors LW and BA
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Crude Oil: Uncertainty about future oil supply makes it important to develop a strategy for addressing a peak and decline in oil production.
Why GAO Did This Study
The U.S. economy depends heavily on oil, particularly in the transportation sector. World oil production has been running at near capacity to meet demand, pushing prices upward. Concerns about meeting increasing demand with finite resources have renewed interest in an old question: How long can the oil supply expand before reaching a maximum level of production-a peak-from which it can only decline?
GAO
examined when oil production could peak,
assessed the potential for transportation technologies to mitigate the consequences of a peak in oil production, and
examined federal agency efforts that could reduce uncertainty about the timing of a peak or mitigate the consequences. To address these objectives, GAO reviewed studies, convened an expert panel, and consulted agency officials.
What GAO Recommends
To better prepare for a peak in oil production, GAO recommends that the Secretary of Energy work with other agencies to establish a strategy to coordinate and prioritize federal agency efforts to reduce uncertainty about the likely timing of a peak and to advise Congress on how best to mitigate consequences. In commenting on a draft of the report, the Departments of Energy and the Interior generally agreed with the report and recommendations.
Results in Brief
(p.4-6)
Most studies estimate that oil production will peak sometime between now and 2040, although many of these projections cover a wide range of time, including two studies for which the range extends into the next century.
The timing of the peak depends on multiple, uncertain factors that will influence how quickly the remaining oil is used, including the amount of oil still in the ground, how much of the remaining oil can be ultimately produced, and future oil demand.
The amount of oil remaining in the ground is highly uncertain, in part because the Organization of Petroleum Exporting Countries (OPEC) controls most of the estimated world oil reserves, but its estimates of reserves are not verified by independent auditors. In addition, many parts of the world have not yet been fully explored for oil.
There is also great uncertainty about the amount of oil that will ultimately be produced, given the technological, cost, and environmental challenges. For example, some of the oil remaining in the ground can be accessed only by using complex and costly technologies that present greater environmental challenges than the technologies used for most of the oil produced to date.
Other important sources of uncertainty about future oil production are potentially unfavorable political and investment conditions in countries where oil is located. For example, more than 60 percent of world oil reserves, on the basis of Oil and Gas Journal estimates, are in countries where relatively unstable political conditions could constrain oil exploration and production.
Finally, future world demand for oil also is uncertain because it depends on economic growth and government policies throughout the world. For example, continued rapid economic growth in China and India could significantly increase world demand for oil, while environmental concerns, including oil’s contribution to global warming, may spur conservation or adoption of alternative fuels that would reduce future demand for oil.
In the United States, alternative transportation technologies face challenges that could impede their ability to mitigate the consequences of a peak and decline in oil production, unless sufficient time and effort are brought to bear.
For example:
Ethanol from corn is more costly to produce than gasoline, in part because of the high cost of the corn feedstock. Even if ethanol were to become more cost-competitive with gasoline, it could not become widely available without costly investments in infrastructure, including pipelines, storage tanks, and filling stations.
Advanced vehicle technologies that could increase mileage or use different fuels are generally more costly than conventional technologies and have not been widely adopted. For example, hybrid electric vehicles can cost from $2,000 to $3,500 more to purchase than comparable conventional vehicles and currently constitute about 1 percent of new vehicle registrations in the United States.
Hydrogen fuel cell vehicles are significantly more costly than conventional vehicles to produce. Specifically, the hydrogen fuel cell stack needed to power a vehicle currently costs about $35,000 to produce, in comparison with a conventional gas engine, which costs $2,000 to $3,000.
Given these challenges, development and widespread adoption of alternative transportation technologies will take time and effort. Key alternative technologies currently supply the equivalent of only about 1 percent of U.S. consumption of petroleum products, and DOE projects that even under optimistic scenarios, by 2015 these technologies could displace only the equivalent of 4 percent of projected U.S. annual consumption.
Under these circumstances, an imminent peak and sharp decline in oil production could have severe consequences, including a worldwide recession. If the peak comes later, however, these technologies have a greater potential to mitigate the consequences. DOE projects that these technologies could displace up to the equivalent of 34 percent of projected U.S. annual consumption of petroleum products in the 2025 through 2030 time frame, assuming the challenges the technologies face are overcome. The level of effort dedicated to overcoming challenges to alternative technologies will depend in part on the price of oil; without sustained high oil prices, efforts to develop and adopt alternatives may fall by the wayside.
Federal agency efforts that could reduce uncertainty about the timing of peak oil production or mitigate its consequences are spread across multiple agencies and generally are not focused explicitly on peak oil. For example, efforts that could be used to reduce uncertainty about the timing of a peak include USGS activities to estimate oil resources and DOE efforts to monitor current supply and demand conditions in global oil markets and to make future projections. Similarly, DOE, the Department of Transportation (DOT), and the U.S. Department of Agriculture (USDA) all have programs and activities that oversee or promote alternative transportation technologies that could mitigate the consequences of a peak. However, officials of key agencies we spoke with acknowledge that their efforts—with the exception of some studies—are not specifically designed to address peak oil.
Federally sponsored studies we reviewed have expressed a growing concern over the potential for a peak and officials from key agencies have identified some options for addressing this issue. For example, DOE and USGS officials told us that developing better information about worldwide demand and supply and improving global estimates for nonconventional oil resources and oil in “frontier” regions that have yet to be fully explored could help prepare for a peak in oil production by reducing uncertainty about its timing. Agency officials also said that, in the event of an imminent peak, they could step up efforts to mitigate the consequences by, for example, further encouraging development and adoption of alternative fuels and advanced vehicle technologies.
However, according to DOE, there is no formal strategy for coordinating and prioritizing federal efforts dealing with peak oil issues, either within DOE or between DOE and other key agencies.
While the consequences of a peak would be felt globally, the United States, as the largest consumer of oil and one of the nations most heavily dependent on oil for transportation, may be particularly vulnerable.
Therefore, to better prepare the United States for a peak and decline in oil production, we are recommending that the Secretary of Energy take the lead, in coordination with other relevant federal agencies, to establish a peak oil strategy. Such a strategy should include efforts to reduce uncertainty about the timing of a peak in oil production and provide timely advice to Congress about cost-effective measures to mitigate the potential consequences of a peak.
In commenting on a draft of the report, the Departments of Energy and the Interior generally agreed with the report and recommendations.
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