The announcement by the Organisation of Petroleum Exporting Countries (OPEC) that Venezuela’s proven crude reserves have risen to 296.5 billion barrels — even surpassing Saudi Arabia’s 264.5 billion barrels — has once again called into question the veracity of the “Peak Oil” theory.
According to the theory, “peak oil” is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.
It has its basis in the work of American geophysicist M. King Hubbert, who developed a bell curve predictor in 1956 which said that American oil supplies would peak between 1965 and 1970.
The theory’s most widely-known proponents, and upon whose work much of the current beliefs about peak oil are based, are geologist Kenneth S. Deffeyes, who worked with Hubbert at the Shell Oil Company research laboratory in Houston, Texas; and the now deceased banker Matthew Roy Simmons, whose company, Simmons & Company International, is a private investment bank based in Houston, Texas.
Both these “gurus” have however been shown to be spectacularly wrong before. For example, in February 2006, Deffeyes claimed that world oil production had peaked on December 16, 2005.
Obviously, with the new discoveries of a multitude of oil fields since 2005 (and not even counting last week’s OPEC announcement about Venezuela), this claim was hopelessly inaccurate.
Mr Simmons said in the “Financial Sense Newshour” programme broadcast in December 2008 that “Mexico’s ability to export oil will be over by the end of 2009″ (“Energy Roundtable,” December 13, 2008, prediction made at 35:50 of the interview). In reality, Mexico exported 1.59 million barrels of crude oil per day in May 2010.
Mr Simmons’ company took the unusual step of publicly distancing itself from its founder’s views on the topic.
In addition, many other industry experts have dismissed the entire peak oil theory as an exaggeration and an alarmist hoax.
The president of Royal Dutch Shell’s U.S. operations, John Hofmeister, for example, agreed that conventional oil production would eventually (and perhaps obviously) go into decline at some point, but dismissed Simmons’ analysis for being “overly focused on a single country: Saudi Arabia, the world’s largest exporter and OPEC swing producer.”
Hofmeister pointed out that there are large reserves at the U.S. outer continental shelf, and a vast supply in unconventional sources of oil such as the oil sands of Canada.
The Canadian oil sands — a natural combination of sand, water, and oil found largely in Alberta and Saskatchewan — contain one trillion barrels of oil.
Clive Mather, CEO of Shell Canada, said the Earth’s supply of hydrocarbons is almost infinite, referring to hydrocarbons in oil sands. Engineer Peter Huber believes the Canadian oil sands can fuel all of humanity’s needs for over 100 years.
Hofmeister has also claimed that if oil companies were allowed to drill more in the United States so that they could produce another 2 million barrels per day, oil and gas prices would not be as high as they were in the latter part of the 2000 to 2010 decade.
Dr. Christoph Rühl, Chief economist of BP, repeatedly uttered strong doubts about the peak oil hypothesis: “Physical peak oil, which I have no reason to accept as a valid statement either on theoretical, scientific or ideological grounds, would be insensitive to prices. (…)In fact the whole hypothesis of peak oil — which is that there is a certain amount of oil in the ground, consumed at a certain rate, and then it’s finished — does not react to anything… Peak oil has been predicted for 150 years. It has never happened, and it will stay this way,” he said.
So what is the truth?
The reality is that there is enough oil to last for a very long time, and that predictions of imminent collapse and shortages are simple crankery.
The only issues are extraction and distribution costs, but these are also subject to a vast array of socio-political pressures which can, and do, equally affect the price of oil.
Unnecessary wars in the Middle East, for example, have a far greater impact upon oil prices than any made-up “shortages” or imaginary crises.
This topic, like nuclear power, should be properly debated and discussed before being forced onto any political party at the whim of one person.
Crankery masquerading as “policy” must be prevented from being forced on an entire party through a process of formal study by experts, followed by consultation and discussion.
Let us hope that this lesson can be properly learned, and implemented, in the near future.