ENERGY

ENERGY
Balancing On the Peak

Syriana, a film depicting the seedy world of global oil politics, opens today in theaters. It is Hollywood fare -- at times a bit oversimplified -- but comes at an important time. Americans today are questioning our nation's energy security as never before. Most understand that without rapid and radical changes, our continued dependence on fossil fuels will undermine our national security, do grave and irreversible harm to the environment, and generate new and higher costs to be paid by working Americans. Yet reducing our dependence on oil is also increasingly understood as a geological imperative. A House energy subcommittee on Tuesday held its first hearing on the "peaking" of oil production, a reference to "a term used in oil geology to define the critical point at which reservoirs can no longer produce increasing amounts of oil." Recent articles -- in the New York Times, Time, National Geographic, Washington Monthly, and Rolling Stone -- have also examined the issue. Though many questions about peak oil theory remain, it is clear that the costs of inaction are high, and that the status quo is not sustainable.

THE END OF OIL? No, we're not literally running out of oil -- about a trillion barrels remain beneath the earth. "Rather, the theory of peak oil derives from a simpler but less widely understood question: How fast can the stuff be pumped out of the ground?" In other words, the concern is with "capacity" -- "the amount of oil that can be pumped to the surface on a daily basis." Currently, the world consumes about 84 million barrels per day (bpd). "If the world's oil suppliers can continue to increase this production rate as demand grows, the global economy is in good shape. If they can't, we're in trouble no matter how many barrels of crude oil are lying under the ground."

PROBLEM -- DEMAND IS GROWING: Oil prices hit record levels this summer and remain high. Why? Mostly from "refinery shortages and surging demand," notably in the United States, China, and India. This boom in demand has "strained the capacity of oil producers and especially Saudi Arabia, the largest exporter of all." The Department of Energy (DoE) predicts that "for all future energy needs to be satisfied, total world oil output will have to climb by 50% between now and 2025." In other words, we need to move from producing 84 million barrels per day to 120 million. "A staggering increase in global production, that extra 40 million barrels per day would be the equivalent of total world daily consumption in 1969."

WILL SUPPLY KEEP UP? Current trends do not elicit optimism: "Twenty years ago, OPEC had spare production capacity of about 15 million bpd. A decade ago that had dropped to 5.5 million bpd. By 1990, spare capacity has dropped almost to zero." According to a 2004 DoE analysis, global oil reserves are already being depleted three times faster than new reserves are being discovered. A February report commissioned by the federal National Energy Technology Laboratory (NETL) offered a similar conclusion. "If recent trends hold, there is little reason to expect that exploration success will dramatically improve in the future. ... The image is one of a world moving from a long period in which reserves additions were much greater than consumption to an era in which annual additions are falling increasingly short of annual consumption." The bottom line is that, to keep up with demand, every year the world would need to produce an additional six to eight million barrels a day. "That's like a whole new Saudi Arabia every couple of years," says Sadad al-Husseini, who served until last year as Saudi Aramco's top executive for exploration and production. "It can't be done indefinitely. It's not sustainable."

PEAK OIL -- WHAT AND WHY: Why isn't it sustainable, if there's so much oil underground? Therein lies the notion of "peak oil": after about half the oil has been extracted from a field, production rates start to go down. "There's still oil left, but declining pressure, exhaustion of the best oil pockets, and increasing contamination bring it to the surface ever more slowly." And ever less profitably. In other words, the problem isn't that the world will run out of oil -- it's that, at one point, it will no longer be profitable to extract it. So no one will. This theory, it's worth noting, is neither new nor controversial. In 1956, M. King Hubbert of Shell Oil used it to predict that U.S. oil production would peak in the early 1970s. His analysis was disregarded, if not derided. U.S. oil extraction peaked in December 1970.

BUT IS IT HAPPENING GLOBALLY? The short answer is yes. "All or nearly all of the largest oil fields have already been discovered and are being produced. Production is, indeed, clearly past its peak in some of the most prolific basins," the U.S. Energy Information Administration said in a recent report. The NETL report likewise detailed "a number of trends that suggest the world is fast approaching the inevitable peaking of conventional world oil production." The natural follow-up question -- when will the global peak occur? -- is inherently speculative, and thus quite contentious. (The U.S. government puts the date at 2037; "most mainstream analysts" suggest it will come earlier, "in 10 or 15 years at around 100 million bpd.") But the question is also somewhat academic. "No matter who's right, what we can say with some certainty is that even if oil production continues to grow, it will grow slowly, which means that supply will barely keep up with rising demand. In other words, it's likely that we're now in a permanent state of near zero spare capacity, which in turn will lead to an increasingly unstable world."

THE HIGH PRICE OF INACTION: The impact of an actual shortfall of supply would be immense. The DoE states plainly, "The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary." According to the New York Times, "If consumption begins to exceed production by even a small amount, the price of a barrel of oil could soar to triple-digit levels. This, in turn, could bring on a global recession, a result of exorbitant prices for transport fuels and for products that rely on petrochemicals -- which is to say, almost every product on the market."

SECURING OUR ENERGY FUTURE: The United States needs more from a strategic energy policy than drilling our nation’s remaining oil and gas supplies, cajoling Saudi Arabia and the other "allies" upon whom we depend for more oil, increasing the subsidies paid to oil companies, and holding the occasional congressional hearing on gasoline prices to make it look like the government cares. There is an alternative. By empowering our domestic agricultural sector to produce renewable energy, we can reduce our dependence on despots and increase the chances of meaningful democratic reform in the Middle East. By bringing to bear a commitment to self-reliance and innovation, we can produce sufficient energy to meet our growing needs, even as we protect our environment, revitalizes our economy, promote global development, and extend the benefits of trade at home and abroad. How? Get the details in American Progress's new report, "Resources for Global Growth: Agriculture, Energy and Trade in the 21st Century."