Fuel crisis looms, oil geologists issue warning

By Peter Beaumont
and John Hooper
London Observer Service

LONDON -- The world faces a devastating oil crisis in the early years of the new millennium, according to a new assessment of conventional oil reserves.

Global production will peak as early as 2002, then decline over the next 70 years, says the analysis. As oil stocks decline, prices will rise steeply, making the oil crises of 1973 and 1979 look "minor and transitory" by comparison.

The fears, which emerged as oil prices hit a 25-year low, contradict the conventional industry view of continuing low prices for the foreseeable future, suppressed by increasing reserves of oil and the development of new areas such as the Caspian Sea.

At the center of the argument are claims that oil-producing countries and companies have deliberately overestimated their oil reserves for political and economic reasons, and major new finds are increasingly unlikely.

Fears that the world is rapidly approaching peak oil production - and inevitable depletion - have galvanized the Group of 8 leading industrial nations into taking action. At the recent Moscow summit, ministers were warned that prices would increase sharply and that "many multibillion-dollar projects" would be required to meet the energy gap.

The concept of oil shortages remains contentious because of the many cries of "wolf" by oil economists after the oil crises of the 1970s that all available stocks would be depleted by the end of the 20th century. This time, however, the warnings are being sounded by a small group of international petroleum geologists who have build new mathematical models to predict peak production and ensuing decline.

Their model is based on a formula devised in the 1950s by geologist M. King Hubert and used with extreme accuracy throughout the oil industry to predict peak yield in individual fields. Now applied on a global scale, the model shows oil production as a bell curve with the apex at the point when half of the available oil has been used up Suddenly the glass that the world has considered to be almost full has been revealed to be half-empty.

Researchers have also used an offshoot of chaos theory to plot probable distributions of as yet undiscovered oil and suggest that the majority of the world's oil has already been discovered.

The leading proponents of the new theory are Colin Campbell and Jean Laherrere, both of whom have been employed in the oil industry for 40 years and are currently working with Petroconsultants, owner of one of the most authoritative data bases on oil production and reserves, in Geneva, Switzerland.

Unlike those who predicted global oil exhaustion in the wake of the last oil crises, Campbell, author of the "The Coming Oil Crises," insists that it is not the point at which the world runs out of oil that is crucial but the halfway point, when production begins to taper off and demand forces prices up.

"The impression that the oil companies give is that oil will just keep on coming," Campbell said. "The reason that they want to do this is simple. They operated in a global market and they have to protect their shares. Unfortunately, it is simply not true. There is a finite amount of oil."

Campbell and Laherrere say the key issue in recent years has been the false impression that oil reserves have been "growing" as companies have revised up their estimates.

In a paper written for the journal Scientific American earlier this year., Campbell and Laherrere reported that their research into reserve estimates that had been published by the oil industry has identified widespread systemic errors, not least the widely used practice of including the highest possible estimates for reserves.

"According to most accounts, world oil reserves have marched steadily upwards over the past 20 years. Extending that trend into the future, one could easily conclude, as the U.S. Energy Information Administration has, that oil production will continue to rise unhindered for decades to come, increasing almost two-thirds by 2020.

"Such growth is an illusion. About 80 percent of the oil produced today flows from fields that were found before 1973, and the great majority of them are declining."

Campbell and Laherrere are not alone in predicting peak production early in the next millennium. A separate analysis out by Craig Bond Hatfield of the University of Toledo, using official U.S. Geological Survey figures, says conventional oil production will peak early in the next century even with the most optimistic estimates.