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With Oil Production Near Peak, Analysts Worry About Meeting Growing Demand


One of the big economic stories this year has been the high price of oil. As winter approaches in the northern hemisphere, there is growing concern about rising prices for heating fuel. Some economists see the increase in energy costs as temporary, but others are predicting a more serious trend. VOA’s Greg Flakus has more from Houston, Texas.

Oil companies are reporting record profits as prices for crude on the world market remain high. Many companies have been reluctant to spend much of their new profits on exploration and development, however, because past experience has shown that rapid price increases are usually followed by sharp downturns. But, there are also experts who believe oil production could be on the verge of peaking, resulting in even higher prices ahead.

Most people in the oil and gas industry believe prices will come back down in the months ahead as new production comes online and economic growth cools. But what would happen if oil production were not able to keep pace with demand? What if, in fact, worldwide production were to peak soon, meaning that less-and-less oil would be produced every year even as demand soars?

These are the questions that haunt people like Matt Simmons, a Houston-based investment banker who has spent 30 years working with the energy sector.

"I am increasingly convinced that we must be at a level now where it is going to become really difficult to get any significant increases in supply and, conversely, demand has become a runaway train," he said.

In a VOA interview, Mr. Simmons expressed concern that very little is being done to prepare for a possible peak in production and that there is, as yet, no alternative form of energy available that can even come close to replacing oil.

"We do not have a plan B," he said. "We literally do not have any kind of workable solution for what we would do in a world that is basically geared up to use more and more non-renewable energy, and if that day finally comes when we are going to have to get along next year with only 98 percent of what we had this year and the year after that it is going to be 95 percent and then the year after that it is going to be 90 percent? What do we do? And the answer is that we do not have any idea."

Mr. Simmons acknowledges that he is among a small minority of people in the energy sector who believe an oil production peak is at hand. Most oil industry representatives say new technology is making it possible to recover oil from areas formerly thought of as worthless and that new fields await development in various parts of the world.

The predictions of a production peak are based on a mathematical formula developed in the 1950s by an oil company geophysicist named M. King Hubbert. Using data from U.S. oil fields, Mr. Hubbert predicted in 1956 that U.S. oil production would peak in the early 1970s. The actual peak came in the year 1970, giving Hubbert's ideas great credence among fellow scientists. Using the same method today, experts have come up with predictions for a peak in worldwide production as early as this decade.

But Amy Jaffe, who studies energy matters at Rice University's Baker Institute here in Houston, dismisses such talk.

"These people are acting irresponsibly, in my opinion, scaring people," she said. "They said a few years ago that Russia would peak, and now we know the amount of resources there is much greater than we previously imagined."

However, one of Ms. Jaffe's colleagues at Rice University, Richard Smalley, who won the Nobel Prize in Chemistry in 1996, says he is worried that the peak oil scenario could be true.

"I find the arguments for an impending peak in worldwide oil production quite convincing," he said. "If it turns out that this is not true, then we will all be incredibly lucky."

Professor Smalley advocates large-scale government funding of alternative energy research to address the possibility of a coming energy crisis.

Although Amy Jaffe believes a peak in world oil production is still decades off, she does recognize the need to both conserve energy and explore other possible energy sources. She says the U.S. government should follow the lead of other industrialized nations and develop a comprehensive energy plan.

"Japan is the second largest economy in the world and their oil use has not gone up hardly at all," she said. "Europe as a whole, the EU, has an economy not as large as the United States, but extremely large, and their oil use has actually gone down. Why is that? That is because they have an effective policy to prevent economic growth coming at the cost of rising energy use. They put in high energy taxes so that people do not consume oil in a wasteful way. They have more efficient automobiles. They have public transportation. France has a big nuclear program. Other countries are using wind."

At a recent conference on alternative energy held at Rice University, New York University Physics Professor Martin Hoffert used stark terms to address the issue of developing new sources of energy before oil production peaks.

"We have never figured out a problem this difficult and I do not believe we are going to be able to solve it without a commitment similar to the Apollo project to get to the moon or the Manhattan project to develop nuclear weapons," he said.

Experts attending the conference spoke confidently of new technology that is making solar and other alternative energies more viable. However, the most optimistic of them agree that these alternatives combined would offset only about ten percent of current fossil fuel use unless there is some dramatic breakthrough. Whether oil production peaks next year or in 50 years, these scientists believe the time to start looking for that breakthrough is now.

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