Why 2004 Will Be Remembered as the Year World Oil Production Peaked
Mr. Miller, who holds a Ph.D. in history, is a Member of the Council of Energy Advisors, auspices Gerson Lehrman Group (New York City).
Mr. Hubbert, we should have listened. In 1957 M. King Hubbert (1903-1989) predicted in a publication of the American Petroleum Institute, Drilling and Production Practice (p. 17), that the peak of world oil output would come "about the year 2000." And it has. As Richard A. Kerr stated in "The Next Oil Cirisis Looms Large--and Perhaps Close," Science 281 (21 August 1998): "the gush of oil from wells around the world will peak at 80 million barrels per day, then begin a steady, inevitable decline . . ." (p. 1128).
That prognostication, by way of a paraphrase of a report of the Paris-based International Energy Agency (IEA), was not expected to come true, however, until sometime between 2010 and 2020, but I believe that the world's oil production peak has been reached in recent weeks. Why? The answer derives from Tim Appenzeller's "The End of Cheap Oil," National Geographic 205 (June 2004): demand for oil globally is "now 80 million barrels a day, [and] continues to grow, . . ." (p. 90). And, from Bhushan Bahree's "OPEC Is Likely to Lift Ceiling of Its Oil Production by 11%," Wall Street Journal (3 June 2004) comes the following: "a world market now consuming 80 million barrels daily" (p. A2). The implication is crystal clear--if the people on planet earth are now consuming 80 million barrels per day--some 29 billion barrels per year--then we must be at the peak in world oil production, as forecast by the IEA back in the spring of 1998, information utilized by Kerr in his article. And, then too, we're back to Hubbert!
But can we accept the predictive worth of the Hubbert Curves, being bell-shaped for plotting the rise, peak, and then inevitable decline of a nonrenewable and finite resource, such as oil? Yes, we can, because the Hubbert model has already been successful in giving the year for the peak oil output in the lower 48 states, as of 1970. Furthermore, the author is not alone in stating that the peak for world oil production was to come in 2004. J. D. Moody, a former president of the American Association of Petroleum Geologists, has designated the same year 2004; see John D. Edwards, "Twenty-FIrst-Century Energy: Decline of Fossil Fuel, Increase of Renewable Nonpolluting Energy Sources," in Petroleum Provinces of the Twenty-First Century, ed. Marlan W. Downey, Jack C. Threet, and William A. Morgan, AAPG Memoir 74 (Tulsa: American Association of Petroleum Geologists, 2001), p. 28. Moreover, one Colin J. Campbell, forty years and more in the oil industry, holding a doctorate in geology from the University of Oxford, then having worked for Texaco as an exploration geologist, next for Amoco as its chief geologist in Ecuador, gave 2003 as the peak year for global oil. See for that his "Accessible Oil Reserves Are Running Out," in Opposing VIewpoints: Energy Alternatives, ed. Helen Cothran (San Diego: Greenhaven Press, 2002), p. 28:
The lines of discovery, consumption, and extraction are bearing down on one another and will inevitably cross, probably in the year 2003; at that point, the world will pass its peak production of oil, meaning that more than half of the world's finite supply of conventional oil [easily producible] will have been extracted and consumed.
We, the peoples of the world, per Campbell's prediction, prolonged the inevitable by only one year! There are other indirect indications of the truth of my assertion and that of Moody's, three of which are presented next. Matthew R. Simmons, chairman and CEO of Simmons & Company International (Houston, Texas), being a major energy-investment bank (dating from 1974), with Mr. Simmons too on the National Petroleum Council, as of the 2000-2001 year, states in his "2003's Constant Surprises May Not Be Finished," World Oil (February 2004): "Despite exceptionally high oil prices for the fourth consecutive year no serious surge in oil supplies resulted" (p. 23). And, second, from "Inventory Data Help Oil Claw Back Some Losses," Financial Times (1 July 2004): "Ali Naimi, Saudi Arabian oil minister, said he believed oil prices were fair [at $35.00 per barrel] and saw no reason either to raise or lower production from current 9.1 m [million] barrels a day" (p. 29). The fact really is that even Saudi Arabia, the one country in the world, which at present supposedly has some excess capacity for increased production, has little leeway for additional output either. Thirdly, as Bruce Stanley reports in "OPEC to Cover for Lost Exports," Philadelphia Inquirer (17 June 2004): Russia and Norway, the second and third leading exporters of oil, after Saudi Arabia, "could do little to help" (p. C2).
Burgeoning demand globally has brought upon us the peak then. Ponder, if the reader will, an excerpt from an editorial in the Financial Times, headed, "Is There a New Floor Price for Oil?" (July 2, 2004):
the latest surge in oil prices has been driven by demand far more than previous oil-price spikes that were caused by supply constraints or fears, such as the 1974 Arab oil boycott, the 1979 Iranian revolution, the 1991 Gulf war and supply problems in 2000 following the 1998 oil-price crash. Nor has the growth in oil demand been confined to booming China and ever-profligate America. The global economic recovery is spurring oil demand in Latin America, India and Europe [p. 12].
A little boy in the story for children has the temerity to point out the emperor actually had no clothes. We are in much the same condition in terms of oil and its peak. Only a very few of us, including myself here, are bold enough to speak out. Namely, that with world oil production at the apex of the Hubbert Curve there is nowhere to go but down! What that means can be expressed in a twofold manner. One, that while oil is not running out (at least yet), it will never be so abundant in the future as to be cheap. That amounts to both a challenge and an opportunity. What would they be? Specifically, while making use of the dwindling supplies of conventional oil worldwide, as best we are able, turn to alternative sources of energy more so than in the past, for they will become, if not already, increasingly cost-effective vis-a-vis oil.
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Peter K. Clarke - 10/9/2007
80 million barrels of oil is a large number. There is nothing magical about it, however. When and at what level oil production will "peak" is relatively unimportant compared to the fundamental reality that oil supplies are finite. Whatever the peaks and troughs of annual output, that means that production and USE of oil cannot grow indefinitely.
As for Mr. Miller's final point about "alternative sources", the best one is the oil currently wasted. Go to any major freeway during rush hour in any major American metropolitan area for a glaring example thereof.
thomas robert tinsley - 11/29/2004
As oil reserves start to decline, won't the holder of remaining reserves posess great power over the economies of other countries seeing that there are no practical replacements for petroleum for the transportation, chemical and food industries?
Just the other day, I was watching an advertisement for the new Jeep Cherokee, “with more torque than the Audi TT and the BMW 325i.” Then the ad shows the Jeep rumbling off into the mountains. I doubt developing countries like China and India feel any different about petroleum than Americans with the new Jeep do.
The bottom line here is that everyone (entire world) is going to suffer from dependence on oil. Question is, who will suffer the least. Well, he that suffers the least is going to be the one who owns the oil. What's it worth to own the oil to countries like the U.S. and China cause neither one of us have it.
Sure, think about it. Would the U.S. allow the Saudis or any other country to control its economy? Would any other country allow the U.S. to control its economy? Hey, I know....Let's fight about it. We got nucs and so do they...
Andrew D. Todd - 7/18/2004
Peter K. Clarke remarks that: "the best [alternative source of oil] is the oil currently wasted. Go to any major freeway during rush hour in any major American metropolitan area for a glaring example thereof." That is true. What is more, the overwhelming majority of those drivers are information workers, en route to their computers.
One obvious starting point is that you can go further and faster on the internet than you can go in a Lear Jet, let alone an automobile. If you go about it the right way, you can subject a transportation-based organization to shattering competition. That is what is beginning to happen in an increasing range of fields.
For example, Microsoft is based on commuting. The greater part of its 50,000 employees drive to the Redmond complex every morning, and the big shots all have their airplanes. Microsoft is in the process of being devoured by the open-source movement, which is fundamentally based on the internet. Similar things are happening to the recording and movie industries, and they are being driven into the same kinds of ultimately futile panic measures as the slaveholders in the 1850's.
The airline industry's difficulties are superficially caused by 9/11, but the actual cause is deeper. The airline industry makes most of its money from business travelers, and business travelers do not particularly enjoy traveling. At best, a first-class airline seat is an inferior substitute for an office. As the internet gets better, the residual advantage of actually being there is progressively outweighed by the disadvantages inherent in travel. The result of this is that firms which continue to use air travel at least drive a hard bargain, in standard declining-industry fashion.
The same process is being repeated elsewhere in the economy. The commutes which still make sense are comparatively short ones which do not use very much gasoline. The details vary, but the unavoidable fact is that warp speed is greater than mach speed. The short-term effect is that you get a class of people frantically trying to out-drive the internet, and, for a time, this masks the underlying collapse.
With regard to Mark Safranski's question about the extent of oil exploration, I must point out that the automobile industry has switched fuels twice in its history. In the 1920's, it switched over to leaded high-octane "ethyl" gasoline. In the 1970's, it switched to unleaded gasoline. The leading auto firms decided what they were going to do, funded the necessary research even if it wasn't properly their department, and issued the necessary edicts. There was a more or less prolonged changeover period, in which the oil industry was obliged to maintain a dual system of pumps, tanks, etc. See Stuart Leslie's _Boss Kettering_ for the details of the leaded gasoline changeover at GM. Charles Kettering, the leading light of the "ethyl" gas changeover, was a versatile engineer who over his lifetime demonstrated brilliance in mechanical engineering, electrical engineering, and chemical engineering. The second changeover, to unleaded gas, was accomplished under government direction, and under protest. However, it still went through. Similarly, after a certain amount of caterwauling, the automobile industry's response to the 1970's oil crisis was to adopt superior Italian sports car engineering on a wholesale basis. Typical aerodynamic drag coefficients (the major determinant of gas mileage at freeway speeds) dropped from 0.70 to 0.35, because Detroit had discovered the wind tunnel. It was rather disconcerting in the 1980's to look at a handsome automobile, and discover that it was only a Chevy, not a Ferrari as one had thought.
However, from about the mid-1980's onwards, the automobile industry slipped into intellectual bankruptcy. The best and brightest young people were no longer interested in automobiles, because they had computers instead. By the 1980's, both science fiction writers and futurists took it for granted that telecommuting was natural and normal, and that only the practical details had to be worked out. That was what happened next. In the 1990's the automobile industry attempted to switch fuels yet again, this time to the electric car. The attempt met with failure. The most important reason was that the industry's thought processes had become infected with romantic fuzziness and wishful thinking, together with the even less attractive spectacle of corporate functionaries knowingly building Potemkin villages.
Stuart W. Leslie, _Boss Kettering: Wizard of General Motors_, New York, Columbia University Press, 1983
There is a whole literature on the psychic deterioration of the automobile industry:
Brock Yates, _The Critical Path: Inventing an Automobile and Reinventing a Corporation_, Little, Brown, & Co., 1996. The minivan at Chrysler.
Mary Walton, _Car: A Drama of the American Workplace_, W. W. Norton, New York, 1997. What happened when Ford tried to revitalize its standard compact car with a redesign.
Michael Shnayerson, _The Car That Could: The Inside Story of GM's Revolutionary Electric Vehicle_, Random House, New York, 1996. An "in the trenches" view of the GM EV1, eventually doomed to failure.
Joe Sherman, _In the Rings of Saturn_, Oxford University Press, Oxford, 1994. Another "in the trenches" account, of GM's Saturn plant in Tennessee, focused on the promise of better manufacturing and robotics to revitalize the auto industry.
David Halberstam, _The Reckoning_, 1986. An "at dawn we slept" interpretation of the Japanese incursion, focusing on Ford and Datsun (Nissan). Stylish portrait of Yutaka Katayama, Datsun's man in California.
John B. Rae, _The American Automobile: A brief History_, University of Chicago Press, Chicago, 1965. Written on the eve of the Japanese incursion. The ultimate whig history.
Jan P. Norbye, The Complete Handbook of Front Wheel Drive Cars, Tab Books, Blue Ridge Summit, Pa., 1979. A manifesto for the re-engineering of the American automobile, which was then in progress.
mark safranski - 7/18/2004
Exactly what percentage of the earth's surface ( never mind it's oceans ) has been explored for oil ?
I've read that the figure is in the single digits and that the United States accounts for a shockingly high portion of that figure ( due to the oil business in the 19th century).