What happens if oil output 'peaks'?

John W. Schoen Senior Producer • Profile • E-mail

With oil prices breaking $60 a barrel, our story last week on a new book questioning OPEC’s ability to keep the world supplied with crude drew a heavy response from Answer Desk readers. Many, like Ray in Los Angeles, fear that coming oil shortages could bring “the end of life as we know it.” We agree. But that doesn’t have to be a bad thing.

'DAY OF RECKONING'?
If, in fact, world oil production has peaked and there are (at best) twenty years worth of oil and gas reserves remaining we are facing cataclysmic change. We're not talking about the "inconvenience" of higher gasoline prices or the need to curtail emissions to arrest global climate change. We're talking about the end of life as we know it. There is no single aspect of our economy, our very lives that is not dependent on products and processes derived from oil and gas …

While "alternative" energy sources are available, they, too, are dependent on fossil fuels: photovoltaic cells and hydrogen fuel cell membranes are derived from petroleum based plastics. The sooner we acknowledge that our fossil fuel sources are finite and the day of reckoning is not that far away, the better our chances that some semblance of what we call human civilization will exist fifty years from now.
  -- Ray S., Los Angeles

The relentless rise in oil prices is certainly worth worrying about. But before you stock up on canned goods and head for the hills, consider an alternative to the dire predictions of the coming collapse of a world civilization starved for oil.  

There's no doubt that the global economy runs on petroleum. If the gauge ever did suddenly hit “empty,” the world -– or more precisely, those countries like the U.S. that are heavy oil consumers –- would be in for a nasty shock. There are plenty of Web sites out there that offer up all manner of predictions about what such a world would look like.

THE ANSWER DESK The archive Answers to earlier reader questions

But while there’s plenty of cause for concern, and the need for major changes in U.S energy policy, we don’t believe that the “gloom and doom” scenarios are inevitable. It’s easy to see what could go wrong; it’s more important to focus on what can go right. Replacing oil as an energy source very well could create "the end of life as we know it." But that post-oil life could end up being a much better one.

The fact is that no one knows just how much oil and gas is still underground waiting to be produced. The oil industry measures reserves based on various probabilities: industry inventories of so-called “P90” reserves, the most conservative measure, assert there’s a 90 percent probability that a given amount of oil will eventually be pulled out of a given oilfield. Until it’s been produced, no one knows for sure.

Here’s what we do know. As we wrote last year, a number of respected academic and industry oil experts are warning -– with, to our mind, fairly compelling arguments -- that global oil production may soon “peak” while demand continues to grow.  While well-reasoned, these arguments are ultimately speculation. And, in response, some strong arguments are now being offered that refute the “peak” forecasts.

The problem is that the debate is a lot like the one over global warming and climate change: If accurate, by the time these forecasts are confirmed by events, it could well be too late to head off potentially disastrous consequences.

Keep in mind that the “peak” of oil production is a lot different than “running out” of oil. When production peaks –- whether next year or decades from now -- there will still be billions of barrels of oil underground waiting to be produced. But if daily demand exceeds daily production, the economists tell us, prices will continue to rise. (One big reason for the 1970s-era gasoline lines in the U.S. was government-imposed price controls; since everyone could still afford to fill up, gasoline retailers ran out or had to ration what they had.)

So unless the government brings back price caps, you’ll most likely be able to fill up your tank for many years to come. But you could be paying $5 a gallon -– or more. European drivers already pay more than double what U.S. motorists pay at the gas pumps. But life there seems to be proceeding, more or less, as usual. In Canada, one of the largest suppliers of oil to the U.S., the average price of a gallon of regular unleaded has was $3.47 a gallon (Canadian dollars). And life there goes on. (Note: We got our Candian gasoline price quote from MJ Ervin & Associates weekly price survey. And earlier edition incorrectly converted this to U.S. dollars.)

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