From Bureau of Economic Geology, The University of Texas at Austin (www.beg.utexas.edu).
For more information, please contact the author.

Op-ed article posted in the Houston Chronicle, Dallas Morning News, and San Antonio Express-News, June 2005

It’s not about Peak Oil

Scott W. Tinker

As Senators prepare to debate the national energy policy, many are aware of the hype surrounding “peak oil.” A Web search of peak oil turns up an array of experts who believe that a pending peak in world oil production will soon lead to global economic collapse. In their rosier scenarios, experts predict sky-high gasoline prices that will crush oil-dependent economies like the U.S. In their darker forecasts, they say that people won’t be able to obtain food, heat their homes, or live securely during a period of global famine and resource wars.

All of this might be entertaining were it another Hollywood film, but it has become almost a subculture (yea cottage industry). For those who wonder whether the global production of oil will peak and begin to decline someday, the answer is yes, it will. The greater question is “should you care?”

Although talk of peak oil has rightfully focused global attention on the need to find alternatives to oil, the absolute peak of world oil production is an issue of supply and in many ways irrelevant. Unlike the 1973 oil embargo, in which high prices were the result of an OPEC-orchestrated supply cutback, high prices today are largely a reflection of demand-supply imbalance. The global demand for conventional oil has, or will soon, outstrip the global capacity to supply conventional oil. Does that mean we are all doomed?

While the shock value of doomsday peak oil predictions is entertaining, it is far more important to recognize the reality of high global energy demand and begin to seek solutions—such as the energy policy being debated in the Senate—that could mitigate the supply-demand imbalance. Solutions abound, but they all will take planning and coordinated investment.

In 1956 M. King Hubbert predicted correctly that U.S. oil production would peak in the early 1970’s. But Hubbert predicted incorrectly that world oil would peak in 1995. What Hubbert also missed is that advances in technology would allow producers to extract oil from known fields far beyond the technological capacity of his day. Because of these advances, the shape of the oil production curve is not really a peak at all, but more of a bumpy mesa. If there is an important “peak” of oil, it actually occurred in the early 1980’s, when oil consumption as a percentage of total global energy topped out just shy of 50%. The percentage has declined today to around 40%, a trend that has been remarkably consistent and unshockingly boring.

Hubbert can be excused for incorrectly forecasting the impact of technology, but modern-day forecasters should know better. They often claim that oil supply is made worse by modern enhanced oil recovery techniques that drain reservoirs faster. In fact, the reverse is true. The combination of higher energy prices and advanced technology will continue to extend the life of conventional oil supplies via enhanced oil recovery processes.

So what are the realistic near-term alternatives to conventional oil?

Most experts recognize that the age of conventional oil will fade during the 21st century. Energy demand in Asia and other developing regions will continue to outpace supply and keep oil prices high and volatile. Fortunately, price and technology will allow for production of heavy oil, tar sands, and shale oil, whose combined global reserves far exceed those of conventional oil, as well as coal liquefaction and gasification, improved gas-to-liquids technology, and alternatives to oil led initially by conventional and unconventional natural gas.

Contrary to some reports, natural gas resources worldwide are substantial. Better still, unconventional forms of natural gas, such as coal gas, shale gas, and tight gas, are often found in regions where oil is not. This is good news for energy markets, which have been overly dependent upon oil from the top five oil-producing countries that control nearly 75% of the world’s conventional oil reserves.

The challenge of natural gas is not resources, but deliverability. As Liquefied Natural Gas (LNG) ports are permitted and built around the globe, natural gas will become a global commodity and help reduce issues of deliverability that have caused price volatility. Natural gas, combined with other noncoal sources of fuel, will most likely surpass oil as a percentage of total global energy consumption between 2015 and 2020. This crossover already happened in the U.S. around 1994.

If no substitute for oil existed, the world would indeed be in for an energy shock, and possibly an economic collapse. Fortunately, that is not the case. What does this all mean for the consumer? We have been spoiled in the U.S. by cheap and abundant energy. The times they are a-changin’. Energy is valuable. We are going to pay more for energy in the future. We should plan accordingly.

U.S. energy policies must be aggressive, must focus on efficiency and conservation measures, and should lead the world in a smooth transition to an unconventional-oil, clean-coal, natural-gas, nuclear, and emerging energy-supply future. Our economy and environment will be the prime beneficiaries.

This is not a shocking prognosis but, rather, a boringly achievable one.