Sunday, September 11, 2005

Oil supply facts, forecasts provide fuel for thought

"It used to be that only environmentalists and paranoids warned about the world running out of oil and the future it could bring: crashing economies, resource wars, social breakdown, agony at the pump. Not anymore – and certainly not this summer, with the average national price of a gallon of gasoline around $2.60 in late August, up 73 cents from last year, and with Hurricane Katrina’s aftereffects bound to push prices still higher. A growing number of industry insiders believe that the era of cheap, abundant oil is ending and that governments, corporate elites and ordinary people are utterly unprepared for the challenges ahead.

Matthew R. Simmons is an investment banker with 30 years of experience advising the industry’s major players, including briefing President Bush and Vice President Cheney. How long abundant oil will last, Simmons has asserted, is “the world’s biggest serious question.” The answers he provides in “Twilight in the Desert” are nothing less than alarming – all the more so because of his pro-industry sympathies and the prodigious research and fair-minded reasoning he brings to his task.

Simmons and other petro-pessimists do not suggest that Earth will surrender its last drop of oil anytime soon. Rather, they contend that we are approaching, or beyond, “peak oil” – the point where half of a given amount of oil has been pumped out and half still remains. That may not sound bad, but history shows that the second half is much costlier and less certain to extract; the U.S. and other post-peak regions have all experienced steep production declines.

In a world where oil demand sets new records every year, the arrival of peak oil promises to bring more frequent and debilitating shortages, higher and more volatile prices, and a host of other nasty consequences. Think back to the oil shocks and gas lines of the 1970s; then imagine those shocks continuing not for months but decades. That’s life in the peak-oil future, Simmons argues, when the suburban lifestyle millions of Americans take for granted will become unsustainable.

Conventional wisdom says that the magic of the market will solve the problem: Higher prices will call forth more supply. In particular, Saudi Arabia is assumed to hold virtually inexhaustible reserves – enough, the Saudis say, to continue the current production rates (8 million to 9 million barrels per day) for another 90 years. Simmons demolishes these rosy assumptions."

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