Are We Running Out of

As we have seen during our brief journey through the history of the oil industry, crying wolf about the availability of oil has been a recurring theme in times of crisis. In the twentieth century, there have been at least three major cycles of oil catastrophism: the first one started during World War I and ended with the tremendous oil glut of 1930; the second one erupted in the United States during World War II, and was few years later denied by the growing petroleum overproduction marking the world up to the end of the 1960s; the final cycle came with the beginning of the 1970s, culminated in the two oil shocks, and was dramatically reverted by the oil countershock of 1986.

However, past experience has failed to warn against such fears and past oil floods after phases of apparent scarcity have not instilled prudence in analysts' judgment, while price collapses following skyrocketing oil values have failed to teach the basic rule governing this peculiar market: its unreliability.

It should thus come as no surprise that at the dawn of the new millennium, a new wave of oil doomsayers predicting an imminent era of petroleum scarcity has gained momentum, with an increasing number of books and newspaper articles reflecting their dire vision.* Like a rising tide, the media's amplification of any voice predicting the earth's inevitable oil insolvency has swept away any reasoned opposition to that unproven notion, making the public debate about oil seem at ease only at the extremes, dominated by a prose rich in superlatives, phantoms, and conspiracy theories.

* See Chapter 15.

Yet it would be incorrect to trivialize the fears of a world short of crude, given the intensity they have touched in the 2000s and the serious concerns they have disseminated in the world. What is more, the effective endowment of our planet's oil resources is such a central issue in any analysis concerning the future of energy and its political and economic implications that coping with it is a necessity. In trying to dispel the major oil dilemmas looming large on the next years, then, we will start with that topic.

For all those who are not acquainted with oil matters, an initial warning is necessary. Today's petroleum doomsday visions have been made much more esoteric and convincing for the casual observer through the intensive use of formal statistical and probability models that seem to penetrate the unresolved mysteries of our subsoil. But in fact they do not. Even in our day no one knows how many treasures the earth's subsoil holds in its depths, and no acceptable method has been devised either to assess them or to calculate the extent of future oil recover-ability from the already-known reservoirs. In simple terms, searching for the ultimate figure about the earth's oil endowment is like searching for the Holy Grail—a never-ending rush with several people claiming to have discovered what in effect remains a mystery.

After this clarification, we can begin our walk through the current oil dilemmas by examining the arguments of oil doomsayers. Whatever their predictions, all of them have a common denominator or, better, a mantra: the so-called Hubbert model.

As we have seen, Marion King Hubbert first made public his intuitive model in 1956; from a conceptual point of view, it was relatively simple.1 Complying with an empirical rule of thumb followed by the first petroleum engineers, Hubbert observed the production curve over time in a known oil province resulting from the successive start-up of the fields discovered in the area: starting from zero, production grows over time until it peaks when half of existing recoverable resources have been extracted—the so-called mid-point depletion. At this stage—according to Hubbert—production tends to decline at the same rate at which it grew. In other words, the symmetrical rise and fall behavior of oil production may be represented by a bell curve: the area below the curve shows the cumulative production of an oil province, or the ''ultimate recoverable resources'' (URR) it holds.

The shape of the Hubbert curve results from the sum of oil production from individual fields brought onstream successively, following the discoveries from the main fields to their satellites. As a consequence, Hubbert maintains, if an oil basin has been sufficiently explored, it is possible to reasonably forecast when it will achieve peak production and when it will run out of oil.

In order to predict the ultimate oil resources of a country, or the entire world, the Hubbertians have refined the original intuitions of their school's founder and introduced some additional considerations. The first is that the geological structure of our planet is already well known and thoroughly explored, so it is highly improbable that there are any completely unknown oil deposits left.2 However, forecasting the future oil stocks of a country, or the world, is complicated by the erratic distribution of thousands of oilfields, by more recent discoveries, and by possible future new findings, each one having different characteristics.

The Hubbert followers seem unconcerned by these problems because they resort to mathematical applications whose fundamentals are similar to the one expressed in the ''Central Limit Theorem,'' which states that the sum of a large number of erratic variables tends to follow a normal distribution, assuming a bell-curve shape.3 For those unfamiliar with statistics or probability theory, this notion may be easily understood by making reference to the ''normal'' behavior of those leaving for weekend holidays. Also if it is impossible to know for certain the single decisions of all movers, empirical observation and statistics say that most of them will leave during the so-called rush-hours (generally on the afternoon of Friday, from 4:30 to 6:30), while only a wiser minority will avoid that hellish concentration. If one represents with a graphic that situation, it will be a bell-shaped curve.

Given these features of Hubbertian models, one needs to accurately assess past production and discovery trends, as well as geological data pointing to the potential for new discoveries and their order of magnitude. Taken together, these factors will permit the models to forecast the future behavior of production in a specific country or the world at large. Think, for example, of an intensively explored country. Its production keeps growing, but the rate of new discoveries is declining despite intense drilling activity, and geological surveys show that all the great oil basins have been tapped. What may remain is limited and scattered. The logical consequence to be drawn is that the country is moving toward its midpoint depletion (or has already passed it) and it is probably squeezing its existing reserves without either replacing them or having the possibility to do so in the future. The Hubbertian model estimates when peak production will be achieved, and then the game is relatively simple: the exhaustion of existing reserves will follow the declining side of the bell curve, which is the mirror image of the rising side.

Thanks to his original model, in 1956 Hubbert succeeded in precisely predicting the peak oil production point of the forty-eight contiguous U.S. states (which do not include Alaska and Hawaii), indicating that the critical year would be 1965 or 1972—depending on a best- or worst-case scenario—plus or minus one year. In fact, it turned out to be 1970.

Such a success is relatively easy to explain, even without the support of a formal and complex model. Simply put, the United States was (and is) by far the oldest and most intensively known, explored, and aggressively exploited area in the world. The knowledge of its subsurface outpaces that of any other region of the world except western Europe by a factor of 100. Consider, for example, that in Texas alone nearly 1 million wells have been drilled, against 2,300 in all of Iraq, and that today there are more than 560,000 producing wells in the United States as against slightly more than 1,500 in Saudi Arabia.4 Nonetheless, without all restrictions imposed by the Texas Railroad Commission, ''the U.S. production would have effectively reached a maximum not in 1970 but in 1957.''5 In fact, one of the major problems of the Hubbert model and of the entire art of forecasting is their inherent incapability of predicting political decisions affecting production, change of habits affecting consumption, price trends and technological evolutions affecting both production and consumption, and so on. Furthermore, more than anything else resource estimates are totally uncertain, because there is no method of ascertaining even their order of magnitude.

In sum, Hubbert's success with the United States was partly a piece of luck, but an isolated one. As one of the Hubbert disciples has rightly underscored, in choosing his symmetrical curve to predict the future production of the United States, Hubbert followed one of the oldest traditions in science, the one based on the so-called Occam's razor: ''try the simplest explanation first.''6 The method worked in his case, but only because of the maturity of the U.S. oil industry, the extensive knowledge of its subsoil, and the unexpected help that U.S. oil policies gave Hubbert himself. Indeed, the American geologist initially did not represent his original model as anything other that what it was, a clever empirical intuition. As he pointed out:

In my figure of 1956, showing two complete cycles for U.S. crude-oil production, these curves were not derived from any mathematical equation. They were simply tailored by hand subject to the constraints of a negative-exponential decline and a subtended area defined by the prior estimates for the ultimate production.

Only later, after his forecast for the United States proved correct and he became a kind of folk hero, his self-complacency led him to the conviction that he had devised a method applicable to the entire world. All this is not intended to diminish the importance of Hubbert's intuitions. But even Sir Isaac Newton made mistakes, and Hubbert was not a latter-day Newton.

In fact, the Hubbert curve has been partially validated only for mature and intensively developed areas where knowledge of the subsoil is the highest and available technologies have been fully exploited. But the increase in subsoil knowledge, the spread of technological progress, and the advancement of drilling—along with political decisions and oil price changes—have shown time and again that peak production can be increased and delayed, so that the decline phase of the bell curve can be shifted to the right, limiting the applicability of Hubbert's theory. Even the highly mature United States still bears within its depths huge volumes of oil that are simply not recoverable today for economic or technical reasons.

Further, hydrocarbon exploration in the world is still far from being complete. Oil and natural gas may be found in sedimentary basins. Of the already known basins of this kind existing on our planet, only about 30 percent today produce oil or natural gas, and a part of them still needs appropriate exploration with advanced tools (Iraq is an example). Of the remnants, 39 percent have been tested with only moderate success: nevertheless, in many cases the results obtained in those basins cannot be considered the last word on their potential, due to the modest spending and poor technology applied to their scouting. Finally, more than 30 percent of global sedimentary basins is still unexplored.7

Hubbert underestimated the difficulty in setting up a model able to gauge the size of the world's ultimate recoverable petroleum resources because the world is not the United States. Its subsurface knowledge is scattered, and in many cases very limited. Overall, he underestimated the dynamic nature of many variables affecting the evolution of oil resources. Thus, when Hubbert tried to broaden the scope of his research by estimating the world's total oil resources, he grossly failed. In the early 1970s, for instance, he projected that the world would reach peak oil production in the mid-1980s at the latest, followed by a sudden decline to only 34 million barrels per day in 2000. In fact, the actual figure for 2000 was around 75 million.8

The major problem is not Hubbert himself, but the majority of his followers, who claim to have succeeded where he failed. Consequently, Hubbert's basic mistakes have not been corrected, and his disciples have continuously pointed to an imminent oil crisis that has never materialized.

As we have seen, the most famous among these disciples is geologist Colin Campbell, whose gloomy views about oil resources have been disseminated through the press and have influenced many opinion makers.9 He is also the founder and chairman of the Association for Study on Peak Oil (ASPO)—that has acted as a resonance box for many oil depletionists. According to Campbell and others, the world will achieve its peak production point some time during this decade, and will then face a rapid depletion of its oil reserves, causing prices to skyrocket and triggering an urgent need to develop alternative sources of energy.

However, Campbell made subsequent revisions of his own estimates of ultimate recoverable petroleum resources—respectively in 1989,1990, 1995, 1996, and 2002—each time increasing it; once his predictions proved wrong, he simply moved forward his doomsday projection of peak oil production. Currently, he estimates URR at around 2 trillion barrels. In 1989, his number was 1.57 trillion.10

Now, each of us may have his own ideas about any subject, including oil. But none of us must mislead the public by claiming to hold an objective truth in our hands. One may fear the exhaustion of oil, but cannot claim to possess a scientific instrument to predict it, as the advocates of oil exhaustion do.

All of this still does not respond to our basic question "are we running out of oil?" but serves to neat the camp from the idea that a doomed scientific answer already exists. An appropriate answer to that question requires a brief journey through the fundamentals of oil resources, quality, production, transformation, and consumption. For the casual reader, it will be an eventful journey, because there are few economic issues that are plagued by uninformed knowledge like that of oil.

End of Days Apocalypse

End of Days Apocalypse

This work on 2012 will attempt to note them allfrom the concepts andinvolvement by the authors of the Bible and its interpreters and theprophecies depicted in both the Hopi petroglyphs and the Mayan calendarto the prophetic uttering of such psychics, mediums, and prophets asNostradamus, Madame Blavatsky, Edgar Cayce, and Jean Dixon.

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