For years, the BIG energy industry giants pooh-poohed claims of the coming peak oil phenomenon and chalked it up to environmental alarmists stirring the pot against BIG oil. Now the Houston Chronicle, Bloomberg, Time, and the Dallas Morning News are all on the same peak oil page and the price of gas isn’t lookin’ good for the foreseeable future. Now is NOT the time for ubiquitous, ghastly expensive and unsustainable toll projects.
Crude crunch coming
Industry wisdom now recognizes there are practical limits to the world’s oil supply
Nov. 20, 2007
The closing price of crude oil on the New York Mercantile Exchange Tuesday set a record, climbing to three cents above $98 a barrel. Market analysts said speculation that the Federal Reserve Board would lower interest rates a third time this year contributed to a drop in the dollar. The drooping dollar, in turn, made energy futures more attractive to investors as a hedge against inflation.
Another contributing factor was Royal Dutch Shell’s report that a tar sands plant in Alberta caught fire Monday. The downed processor could reduce shipments of crude to U.S. refiners.
However, underlying daily developments in the financial markets is a structural limit on supply in a world in which demand for oil is rising. On Nov. 14, the Chronicle stated in an editorial that $100 oil and an energy crunch were inevitable because the supply of crude was vulnerable to weather, shortages of skilled workers, production bottlenecks, political instability and terrorism.
Monday, in a front-page article, The Wall Street Journal reported that many Western oil industry executives have come round to that view. After years of discounting predictions of peak oil production, these industry leaders and some officials of oil producing nations now say oil production will plateau during or before 2012.
According to the Journal, ConocoPhillips chief executive James Mulva told a Wall Street conference, “I don’t think we are going to see the supply going over 100 million barrels a day. … Where is all that going to come from?”
Christophe de Margerie, the Journal reported, head of the French oil company Total, was even less optimistic, saying that daily production in 2030 of even 100 million barrels would be difficult.
Production will reach its limit, current industry wisdom suggests, not because there is insufficient oil in the ground, but because of structural deficits in production, including restricted oil industry access to foreign and offshore reserves and insufficient investment in fields in Iran and Venezuela, both headed by presidents more intent on making trouble for the United States and its allies than in maximizing global supplies of crude oil.
Iraq has huge untapped oil reserves, but lack of security keeps away needed investment. And production of oil from tar sands has proved to be slower and more difficult than first envisioned.
Investment banker Matt Simmons of Houston, a leading proponent of the peak oil theory, notes that discoveries of large oil fields have become rare and that smaller discoveries just won’t provide adequate reserves to meet growing demand.
In the face of restricted supply and higher prices, Americans are driving more than ever. This suggests that the market will bear much higher prices at the pump.
Market theory predicts that higher prices will encourage development of supply. This time, the dictators who control much of the world’s oil reserves have so much money coming in and so little concern for others that they lack the usual motivation to produce.
No wonder Western energy executives are beginning to worry that demand will soon outpace supply.