OTTAWA — It’s been a tough week for peak-oil theorists — those limits-to-growth doomsayers who argue the world’s crude oil supply has begun an inexorable decline that will force prices ever higher.
At an OPEC meeting this week, Abullah Jum’ah, chief executive officer of Saudi Arabia’s state-owned Saudi Aramco, directly challenged their theory, saying there is plenty of world oil left to be recovered.
As if to underscore his claim, crude prices fell throughout the week, as geopolitical concerns that had been driving the market took a back seat to the fundamental fact that there is now ample production to meet slowing demand growth.
Yesterday, crude oil prices on the New York Mercantile Exchange — which hit a record $78.40 (U.S.) in July — traded briefly below $63 a barrel before settling at $63.33, down $2.92 on the week.
But Kenneth Deffeyes, a leading peak-oil theorist from Princeton University, has seen nothing that shakes his conviction. On the contrary, he said he can point to the precise month when global crude production peaked: December, 2005.
Prof. Deffeyes, a geologist who last year published Beyond Oil: The View from Hubbert’s Peak, said short-term market fluctuations in price have absolutely no relevance to the debate over the life expectancy of the world’s crude oil supply.
“This is 99-per-cent physical; 1-per-cent economics,” he said in an interview. “There is only so much oil in the ground and we have now reached the peak of productive capacity.”
Hubbert’s Peak takes its name from geologist M. King Hubbert, who correctly forecast in 1956 that the U.S. conventional oil production would begin to decline in the early 1970s.
His theories and methods have been applied to the world scene by a cadre of modern-day experts — mostly from academia– and used to forecast calamitous price increases and rapidly dwindling supplies.
In the past few years, a plethora of books have appeared, with titles such as The End of Oil and A Thousand Barrels A Second, which forecast an eventual decline in productive capacity, though the expected “peak” date varies widely.
Prof. Deffeyes noted that data from the U.S. Energy Information Administration indicates world crude oil production peaking at 85.1 million barrels a day last December and then declining to 84.3 million barrels this past June.
He rejected suggestions the downturn is a temporary blip and was unfazed by the fact the EIA itself forecasts that oil production will grow to 102 million barrels a day by 2030.
The December peak “fits a long-term curve that goes back to 1900,” he said yesterday. And he dismissed the EIA’s forecast: “I work from facts contained in the data, not from fantasies in forecasts.”
At the meeting of the Organization of Petroleum Exporting Countries in Vienna this week, Mr. Jum’ah said the world has consumed only 18 per cent of the potential reserves of 5.7 trillion barrels.
Yesterday, OPEC lowered its forecast for 2007 demand by 320,000 barrels a day and analysts are beginning to question whether member states will be looking to cut production if prices continue to come under pressure.
While the peak-oil theorists are undeterred by the price slide, governments and the broader public may lose interest in the theory if prices settle back into a more comfortable range.
In the United States, the Department of Energy has asked the National Petroleum Council, an industry information group, to investigate peak-oil claims. In Australia, a senate committee has concluded that the government there should plan for an imminent decline in world oil production, while Sweden hopes to end its oil dependency by 2020.
James Williams, a veteran energy economist at WTRG Economics Inc., said the peak-oil theorists make a legitimate point — over the long-term.
“There is only so much oil in the ground,” Mr. Williams said. He added, however, that higher prices — even if they fall back to $50 — will allow crude oil deposits that have not been counted as potential reserves to be commercially exploited.
“The estimate of reserves is a moving target,” he said. “If you double the price, you automatically increase reserves.”
