Peak Oil End of Cheap Energy??A Review of the Facts and Myths

Paul Thompson Background on how I got interested in topic years agoNot expert but stayed at Holiday Inn ExpressGrain of salt till this past AugustExplain how I now read several articles a day. Still looking for answers for my childrenAsk question of how many have heard of the term Peak Oil

For the past 10,000 years of civilization we have always had an expanding fossil fuel supplyNow we are faced with a shrinking fossil fuel supply

One more Problem to deal with

Global Frame

Knowing where you are is nine tenths of navigation ~ wise seaman David Room

denial > bargaining > depression > acceptance

Facts do not cease to exist just because they are ignored.Aldous Huxley

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The chief economist of Morgan Stanley recently predicted that we have a 90 percent chance of facing economic Armageddon.

Do not confuse End of Cheap Oil with Peak OilAlthough there is not a consensus on Peak Oil there is consensus now that we have used up the worlds cheap oil, therefore we will have serious problems ahead either way.Explain why we are at end of Cheap OilCherry PickedBalance is not light sweet crudeHard to reach regions of the worldUnstable region of the world (Nigeria)

Peak OilWhere did the term come from and what does it mean8

I will cover the following in this brief presentation:Background & origins of Peak OilWhat data supports the issueWhy Oil is so important to our livesWhat are potential consequences when world peaksWho is speaking out on the issueWhat studies support the issueSide IssuesSaudi ArabiaAlternativesERoEIExponentional MathScalability IssuesTime to MarketChinaWhat our government is doing in regards to Peak Oil (Other governments)Then we will look at opposing argumentsCan the experts be wrongWhy we have an Energy Problem regardless of Peak OilBrief look at Natural GasSolutionsSome number to rememberResourcesSome Humor

Definition of Peak Oil "Peak Oil" as a proper noun, or Hubbert's peak applied more generally, refers to a singular event in history: the peak of the entire planet's oil production.

Peak Oil is essentially a matter of energy flows. The world economy in 2007 will require around 84 million barrels per day (30 billion bbl/year) of petroleum just to function at its 2006 level. To sustain that rate requires 1 billion barrels of oil the equivalent of two megafields be produced every 12 days. Therefore, what is more significant than the actual production peak date is the onset of a demand gap when oil demand exceeds the capacity of the system to supply it. At that point, the world tips from a long-term buyers to a sellers market for petroleum.

Hubberts Peak

Dr Hubbert (1903 1989) Shell Oil Employee published his Peak Oil Model in 1949 (Science Magazine)1956 predicted US Oil would peak in 1970, off by one yearPredicted the world would peak in 1995, off by only 10-20 years it appears but only off by 3% on production

Peak OilHalf Way point - Decline

- explain the complicated math behind Hubburts formula

5.2.1 Theory of the HubbertModelThe best known depletion model for a .nite natural resource is theHubbertmodel. The model with respect to oil considers three factors: oil discoveryrate, oil production rate and the size of the oil reserve at any time. The ideais that for a new region, where it is assumed there is no constraints on exploration,the .rst discoveries are small and the discovery rate low. Duringexploration both the size of the discoveries and the rate then grow becauseof better knowledge of the region. Later during the exploration the rate ofdiscoveries decreases as well as the size of the discoveries. Accordingly, thecumulative value of all discoveries (VD) will be represented by an S-shapedgraph (.gure 5.4).

U.S. ProductionPeak - 1970

Measured in 1000 barrels per day

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From 1970 to 1982, as the price of oil went through the ceiling, the lower 48 US production continued to decline. There was no increase in production in response to price as economic theory would presume. Price (oil going from $2/bbl in 1973 to nearly $40/bbl in 1982) had no effect at all. Production merely dropped. This was true even when we had 4500 drilling rigs searching for oil in 1982.Because the USA (excluding Hawaii and Alaska) has been producing longer than anyone else, largely unaffected by external matters, it shows the Hubbert Curve better than anywhere else. You can see that production has been declining since the 1970s and, despite the efforts of the richest, most technologically advanced society in the world, has not been stopped. Source: ASPOHubbert warned about buying outside cheap oil in the 70s

The Example of the USAFor those who feel that science will provide the answer with new discoveries or improved methods of extraction, it may be wise to look at the USA (mainland) as an example. They have been searching for and extracting oil for longer than anyone, since 1859, and have had more financial and technological muscle than anyone. If anyone could turn around oil declines, it would be that country. Yet, look at the following chart of US oil production. Oil peaked in 1971 and has fallen with barely a pause since then. Thirty years of money and research has neither slowed nor reversed the decline. Why then should the world fare any better?

U.S. total oil production in 2003 declined sharply (around 2.8 million bbl/d, or 26%) from the 10.6 million bbl/d averaged in 1985. U.S. crude production, which averaged 5.4 million bbl/d during the first ten months of 2004, is now at 50-year lows. The United States contains over 500,000 producing oil wells, the vast majority of which are considered "marginal" or "stripper" wells, generally producing only a few barrels per day of oil.

Countries that have Peaked

IEA International Energy Agency According to the International Energy Agency, 43 of the 58 biggest oil-producing countries have passed their peak. All super-giant fields in the world are in decline. 16

The Big QuestionAre we at the Half Way Point?

2 Trillion?

One petroleum engineer Michael Economides of the University of Houstoncalls peak oil predictions the figments of the imaginations of born-again pessimist geologists. Like Lynch, Economides, who worked in Russia to boost that countrys oil production in the last decade, rejects Simmons analysis. Saudi Arabia, which currently produces about 10 million barrels of oil a day, is underproducing every one of their wells, he claims. I can produce 20 million barrels of oil in Saudi Arabia. The Tank Is Still More Than Half Full So whos right? Fortunately, it looks like humanity is at least a generation away from peak oil production. Unfortunately, there could be another oil crisis any day now. The world consumes about 87 million barrels of oil per day, or nearly 30 billion barrels of oil per year. How much oil is left? Its hard to be sure. Proven oil reservesi.e., oil that is recoverable under current economic and operating conditionsare estimated to be 1.1 trillion barrels by the industry journal World Oil, 1.2 trillion by the oil company BP, and 1.3 trillion by the Oil and Gas Journal. In March 2005 the private U.K.-based energy consultancy IHS Energy estimated that the worlds remaining recoverable reserves, excluding unconventional sources such as heavy oil or tar sands, are between 1.3 trillion and 2.4 trillion barrels. But are proven reserves all thats left? Several analyses put ultimate reserves at much higher levels. For example, the USGS undertook a comprehensive analysis of world oil reserves in 2000. It calculated that the total world endowment of recoverable oil is 3 trillion barrels. (Its figure is higher because it includes estimates for undiscovered resources and projected increases in already producing fields.) In addition, the total world endowment of natural gas is equivalent to 2.6 trillion barrels of oil, plus 330 billion barrels of natural gas liquids such as propane and butane. The USGS figures that the total world endowment of conventional oil resources is equivalent to about 5.9 trillion barrels of oil. Proven reserves of oil, gas, and natural gas liquids are equivalent to 2 trillion barrels of oil. The USGS calculates that humanity has already consumed about 1 trillion barrels of oil equivalent, which means 82 percent of the worlds endowment of oil and gas resources remains to be used. In its 2005 Energy Outlook, ExxonMobil estimates global conventional oil resources total 3.2 trillion barrelswith non-conventional frontier resources such as heavy oil bringing that total to over 4 trillion barrels. In November 2005, the International Energy Agency, an organization created in 1974 by 26 industrialized countries to assess global energy issues, released its annual World Energy Outlook report, which accepted the USGS numbers and concluded that the worlds energy resources are adequate to meet projected growth in energy demand until at least 2030. The report predicted that oil production would grow from the 2004 level of 82 million barrels a day to 115 million barrels a day and that any peak would occur after 2030. It suggested that world oil prices will decline to around $35 per barrel (in 2004 dollars) by 2010 and eventually rise to $39 per barrel by 2030. At the Montreal Climate Change Conference in December, Claude Mandil, head of the International Energy Agency, declared: We dont share the tenets of the peak oil theory. We feel that they underestimate technological developments. For many decades to come there is no geological problem. Probably the most respected private oil consultancy in the world is Cambridge Energy Research Associates (CERA) in Boston. On December 7, 2005, CERA senior consultant Robert W. Esser testified at a House Energy and Air Quality Subcommittee hearing on the peak oil theory. CERAs belief is that the world is not running out of oil imminently or in the near to medium term, Esser said. Indeed, CERA projects that world oil production capacity has the potential to rise from 87 million barrels per day [mbd] in 2005 to as much as 108 mbd by 2015.We see no evidence to suggest a peak before 2020, nor do we see a transparent and technically sound analysis from another source that justifies belief in an imminent peak. Instead of a sharp peak followed by a production decline, CERAs analysts foresee an undulating plateau in which global oil production remains more or less steady. It will be a number of decades into this century before we get to an inflection point that will herald the arrival of the undulating plateau, said Esser.

Data Paints the Picture

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When in doubt examine the data again Wise Old Geologist Principle

Oil Discovery (world)

The trend of oil discovery peaked during the 1960s with the last exceptional year being 72 Gb in 1972. It clearly shows the fall in discovery. Even the occasional successes such as the discovery of North Sea oil in the mid-1970s do not halt the trend, just provide a few years' respite

Oil Discovery minus Consumption (world)

The really important statistic about discovery is shown here as the difference between what the world discovers and what it consumes. Until 1980 (with the exception of 1972), we had been discovering more than we used. Since then, the trend has gone into negative and we are eating away at our stores of oil. As discovery is expected to continue to fall and consumption rise, it can only get worse.Source: ASPO

World Oil Consumption in Barrels per Year Growing Demand

Caspian Sea Oil

This chart shows how oil discoveries have been dropping since the 1960s. New major discoveries only last for a few years - the trend line continues. The orange line indicates annual consumption. To avoid the problems of oil depletion, we would not only have to slow the discovery curve but reverse it so that annual discoveries moved above the consumption line (or the line fell). Neither option seems likely.Source: ASPODiscoveriesSurprisingly enough, despite the differences in how reserves are worked out, there is some consensus on how much oil remains and that is between 1000 and 1100 Gb. The key question, the point where the optimists and pessimists differ, is how much there is left to discover.

Presentation by C.J.Campbell December 2000

From a speech by Colon Campbell, Growing Gap This shows the growing gap between discovery and consumption as we move from surplus to deficit The yellow curve shows exploration drilling. Note that the level of activity barely affects the discovery trend. It destroys the flat earth heresy that discovery is driven by market forces

The largest 1% of oil fields contain 75% of all the discovered oil. Till this day more than 42,000 oil fields have been found, but the 400 largest oil fields (1 per cent) contain more than 75 per cent of all oil ever discovered. The largest 3% contain 84% of the oil

Following Number Should Cause Us Grave ConcernMost oil fields now discovered are less than ten million barrels, and ten million barrels will supply the United States with less than a 12 Hours worth of energy.

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Is There a Lot More Undiscovered Oil?: 80 per cent of oil being produced today is from fields discovered before 1973. In the 1990's oil discoveries averaged about seven billion barrels of oil a year, only one third of usage. The discovery rate of multi-billion barrel fields has been declining since the 1940's, that of giant (500-million barrel) fields since the 1960's. In 1938, fields with more than 10 million barrels made up 19% of all new discoveries, but by 1948 the proportion had dropped to only 3%. Most oil fields are less than ten million barrels, and ten million barrels will supply the United States with less than a day's worth of energy. Large oil fields make up a disproportionate part of the world's oil supply. The ten largest oil fields contain a fifth of the world's oil reserves; twenty more bring the total to a third. 500 large fields contain two thirds of the world's known oil. The remainder is distributed among 20,000 or more small oil fields. The fact that discoveries of large fields are getting rarer means only one thing: we are running out of new oil to find. From: http://www.uwgb.edu/dutchs/202ovhds/resource.htm Steven Dutch, Professor, College of Environmental Sciences, University of Wisconsin-Green Bay.

By every measure of petroleum security or vulnerability that we have examined, the United States is as vulnerable, and in most cases more so, than at the time of the 1973 Embargo. Domestic production is about half, dependence on imports is 50 % higher, the number of days that stocks can replace imports is 5 % lower, and a larger percentage of imports is concentrated in a few suppliers. In addition, an action in Iraq would result in the elimination of most of the worlds excess capacity for an indeterminate period of time. An energy crisis is a situation in which we have disruption in oil supplies that increases energy prices rapidly and threatens our economic and national security. The experience of the Gulf War shows us that indicators showing vulnerability in many areas in and of themselvesdo not mean that there will be an oil crisis, but the current measures do indicate that the potential is historically high. The lack of public information regarding the amount of storage by Saudis and others in the Caribbean makes it difficult to make predictions regarding the amount of stocks available to US markets. In fact, if rumors about large storage build up in the Caribbean are correct, the US may suffer from a period of high oil prices but supplies may be sufficient. The return of Lake Maracaibo pilots to work in Venezuelan will also lead to some additional supply. In addition, the normal seasonal decline in the spring of 2-2.5 b/d will soften the impact of any supply interruption from Venezuela, Iraq, or any other country. If there are shortages, the lessons that we will learn in the coming months have the potential for shaping energy policy in the US for years to come.

Drowning in Sour CrudeNon-OPEC, GOM crude quality deteriorating just as regulations are ridding world fuels of sulfurNon-OPEC crude qualitySource: Wood Mackenzie, Deutsche Bank

Vital Trivia used data from OPEC's August Oil Market Report to calculate that global production of light, sweet crude actually declined between 2000 and 2004-- peak oil has already passed, at least as far as light, sweet crude is concerned.

Reserve Replacement Ratio 2005-2010 (EST)

Oil Fields Discovered Larger than 500,000 Barrels, last super giant of 10 Billion Barrels was over 40 years ago33

Published on 9 Mar 2007 by Uppsala University. Archived on 23 Mar 2007.Giant oil fields and their importance for future oil productionby Fredrik Robelius Giant Oil Fields - The Highway to Oil:Giant Oil Fields and their Importance for Future Oil Production

Since the 1950s, oil has been the dominant source of energy in the world. The cheap supply of oil has been the engine for economic growth in the western world. Since future oil demand is expected to increase, the question to what extent future production will be available is important.

The belief in a soon peak production of oil is fueled by increasing oil prices. However, the re- liability of the oil price as a single parameter can be questioned, as earlier times of high prices have occurred without having anything to do with a lack of oil. Instead, giant oil fields, the largest oil fields in the world, can be used as a parameter.

A giant oil field contains at least 500 million barrels of recoverable oil. Only 507, or 1 % of the total number of fields, are giants. Their contribution is striking: over 60 % of the 2005 production and about 65 % of the global ultimate recoverable reserve (URR).

However, giant fields are something of the past since a majority of the largest giant fields are over 50 years old and the discovery trend of less giant fields with smaller volumes is clear. A large number of the largest giant fields are found in the countries surrounding the Persian Gulf.

The domination of giant fields in global oil production confirms a concept where they govern future production. A model, based on past annual production and URR, has been developed to forecast future production from giant fields. The results, in combination with forecasts on new field developments, heavy oil and oil sand, are used to predict future oil production.

In all scenarios, peak oil occurs at about the same time as the giant fields peak. The worst-case scenario sees a peak in 2008 and the best-case scenario, following a 1.4 % demand growth, peaks in 2018.

~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~

Contributor Lars Olofsson writes: Doctoral thesis on peak oil, will be defended on the 30th of March, opponent Robert Hirsch. Click "fulltext" link at top for the entire thesis as a PDF. [or here (warning- 3.67MB file] This 168-page thesis should be of interest to peak oil wonks; it certainly comes with credentials. In his "Acknowledgements" section, author Fredrik Robelius mentions that he is a member of the Uppsala Hydrocarbon Depletion Study Group (UHDSG) and that his thesis supervisor is Kjell Aleklett (President of ASPO).

Currently, the US has approximately 600,000 oil wells in operation. Nearly 500,000 of those wells produce less than three barrels a day" from The (US Government) International Trade Resource Center

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Baby Boomers

Average daily oil production, by month, from EIA and IEA, together with 13 month centered moving averages of each line, recursed once.

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Stuart StanifordBioPhD Physics, MS CS. 10 years as an innovator in computer security (especially worms). Patents, research papers with 100+ citations, major media coverage. Ran a company for 5 years. Now working as a consulting scientist and researching peak oil.

Average daily oil production, by month, from EIA and IEA, together with 13 month centered moving averages of each line, recursed once. Click to enlarge. Believed to be all liquids. Graph is not zero-scaled. Source: IEA Oil Market Reports, and EIA International Petroleum Monthly Table 1.4. The IEA line is taken from Table 3 of the tables section at the back of the OMR in the last issue for which the number for that month is given; last two points in purple are at earlier stages of revision than the rest of the graph.

In the history of oil production, which is now extending over more than 150 years, we can identify some fundamental trends:

The world's largest oil fields were all discovered more than 50 years ago. Since the 1960s, annual oil discoveries have decreased Since 1980, annual consumption has exceeded annual new discoveries. The historical maximum of oil discoveries has to be followed after some time by a maximum of oil production (the peak).

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USGS Les Magoon

Why Oil Is Important40

Why should we be worried ? In all of history, mankind has never become dependent on any resource, like they have on fossil fuels. Our addiction for oil goes way beyond that of a transportation fuel. From the moment we wake up in the morning to the time we go to sleep, oil controls our lives. Its influence reaches far into politics, international affairs, global economies, human rights, and environmental health of our planet.

The most obvious way that oil dominates us, of course, is transportation. Oil powers 97 percent of America's transportation needs and over half the oil we consume daily goes to keeping our cars and trucks on the roads. Thats one barrel out of every 7 used in the world. Not surprisingly, United States has more automobiles than any other country; in fact, it has more cars and trucks than it has people.

But oil is far more important to modern society than simply as fuel for our automobiles and airplanes. Oil provides the heat in the winter for millions of American homes, and it accounts for 40% of our total energy needs. Without oil, there would be no plastics, nor many of the chemical-based medicines we take for granted. Perhaps most important, America would go hungry without oil: commercial agriculture would grind to a halt without oil to run farm and food processing machinery or to make fertilizers, herbicides, and pesticides.To better understand oil's impact on our lives, Fossil Fuel and FarmingWhat most people don't realize is that a huge amount of energy is spent to produce the food we eat. In fact, 17 % of all hydrocarbons used in the U.S., is consumed by the food production system.Most food is now produced by large industrial scale, centralized agricultural facilities, which use energy-intensive farming procedures. Enormous quantities of hydrocarbons are needed to power heavy farming machinery, to process foods, to refrigerate foods during transportation, to produce packaging and to manufacture and transports agricultural inputs such as fertilizers, pesticides and insecticides.The production of 1 kilo gram of nitrogen for fertilizer requires 1.4 to 1.8 liters of diesel fuel alone, not taking into account the Natural Gas feed stock. In the year from June 30, 2001 until June 30, 2002, the U.S used 12,009,300 short tons of nitrogen fertilizer. That equates to the energy content of 15.3 to 21.6 billion liters of diesel fuel or 96 to 124 million barrels. On top of the diminishing availability of fossil fuel, post peak oil agriculture has to content with falling grain production per capita, availability of fresh water, salinization of soil, erosion of topsoil, pests/insects with evolving immunities to pesticides/insecticides etc.

Oil Our Slaves41

One barrel of oil, 42 gallons of oil, equals the productivity of 25,000 man-hours.

Income Relationship to OIL

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Dick Cheney, CEO Halliburton Oil is unique in that it is so strategic in nature. We are not talking about soap flakes or leisurewear here. Energy is truly fundamental to the worlds economy. The Gulf War was a reflection of that reality. The degree of government involvement also makes oil a unique commodity. This is true in both the overwhelming control of oil resources by national oil companies and governments as well as in the consuming nations where oil products are heavily taxed and regulated.... It is the basic, fundamental building block of the worlds economy. It is unlike any other commodity.

Consequences of Peak Oil

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The chief economist of Morgan Stanley recently predicted that we have a 90 percent chance of facing economic Armageddon.

Real Threat The real threat is not that world is running out of oil, the real threat is a shortage of 5% in Supply vs. Demand

Last HalfSour & HeavyHard to extract, low EREILocation is problem

Who is Speaking Out On Peak Oil

What Reports Support Peak Oil

Dr Colin Campbell

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PhD in geology at the University of Oxford, worked for Texaco then Amoco, now is a consultant for Petroconsultants in Geneva

From Scientific America

Kenneth S. Deffeyes

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Deffeyes says 97% of Worlds Conventional Oil has been found

Matt Simmons

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Owns Oil Banking Investment Company 56 billionClients World Bank, Bechtel, Kerr McGee, Halliburton, Saudi ArabiaMember of Council on Foreign RelationsMember of Bush Energy Council

Expert on Saudi Arabia

Simmons concludes that the world's major oilfields, which produce more than half of our oil, are now getting old. Of the world's 60 oilfields now producing more than 100,000 barrels per day, only two have been discovered in the last 25 years. The data indicate that all those highly touted new technologies are not finding oilfields fast enough to offset the normal production decline of the older fields.

Clinton..But if you look at the modern world we have no choice but to try to move from interdependence to integration cause the world we live in today is we can't keep going this way. We can't keep going with half the people left out of it economically. It's unequal. It's also unstable.

...The third thing I want to say about it is that it is unsustainable because of climate change and because in addition to climate change because of resource depletion. Matthew Simmons, a distinguished petroleum investor who is no liberal Democrat tree-hugger like me, he is one of the Bush family's close friends. He's a conservative Republican. He says we have 35 years of recoverable oil left. The Saudis and Exxon say no, no we've probably got 100 years. Now the oldest city in civilization according to carbon dating that we know about today is Jericho in the Middle East, 10,000 years old. That means that the real happy talk people are saying we have a hundred years out of 10,000, one percent of the whole history of civilization, left to burn oil.

Reports on Oil Summit Rimini, ItalyOct 30, 0553

James Rodney Schlesinger (born 15 February 1929) was United States Secretary of Defense from 1973 to 1974 under presidents Richard Nixon and Gerald Ford. He became America's first Secretary of Energy under Jimmy Carter.

James Schlesinger warned summits participants (oil ministers, senior officials of OPEC, International Energy Agency, and the UN Officials) of a grave threat to the world economy from a coming peak in oil production. Political systems do not deal easily with long term threats, even if they have a probability of 100% Schlesinger warned. We are asleep at the wheel he said. Most people and all governments are in denial he intimidated. His message to the conference was clear: economic horror will descend on the world if we do not plan ahead, and the time to start is now.

Ex-CIA Chief Predicted 'Peak' Oil CrisisIn 1999 CFR Paper

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Alan Greenspan55

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Tom Whipple

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The Peak Oil Crisis: Connecting the Dots By Tom Whipple Thursday, 08 February 2007 In the months after 9/11 there was much discussion about the American government's failure to "connect the dots." Hints and clues that Al Qaida was about to launch airborne suicide attacks inside the US abounded but nobody put the bits and pieces together into a convincing warning. Such it may be with peak oil. There are trend lines and clues from across the earth pointing to serious troubles just ahead, but once again they are not generally perceived as making a "convincing case," especially when nobody really wants to contemplate the conclusion.The "dots" of peak oil cluster into four groups.

First, there are the depletion vs. new discovery dots. Every active oil field on earth is giving up some share of the 85 million barrels we burn up each day. New wells are constantly being drilled into existing oil fields in an effort to maintain production as the oil from the field is used up. As fields mature and new wells are not enough to maintain production, output starts to drop. To offset the loss and maintain or increase our 85 million barrels a day, new fields must be opened and start producing. This balance between old fields drying up and new fields starting up is the heart of the peak oil story. When there is not enough production from new fields or other "unconventional" sources of oil substitutes to offset the decline, it is all over world production has peaked.For the last couple of years, new production and depletion have been running just about neck and neck, with production from new fields just offsetting the declines in production and cutbacks from geopolitical factors such as insurgencies and other political disputes. Some knowledgeable observers, after noting the pace at which in production is falling particularly from the North Sea and Mexico's Cantarell fields, believe that new production going on stream during 2007 will not be enough to maintain the production level we have seen during the last two years.These observers note the cost of extracting oil from new, mostly offshore, fields has been increasing rapidly and that many projects have been slipping due to the unavailability of skilled personnel and equipment necessary to bring them on stream as rapidly as planned. It should be noted that we don't yet have returns in from the giant Saudi oil fields. Saudi production has dropped about 1 million barrels a day in the past year. The Saudis maintain they are simply cutting production due to a glut of oil and falling prices. Many outside observers, however, are suspicious that there may be more to the story. Various techniques of assessing the course of Saudi oil production suggest these giant fields, some of which have been in production for 60 years, are ready to go into rapid decline. If this is happening, the Saudis sure aren't going to tell us. Just to be safe, the Saudi dot should probably be flashing amber just as the North Sea and Mexican dots are already flashing bright red.

The next cluster of dots are the one's for the world's oil exporters. Some of these countries are fine, upstanding places like Canada, Norway, and the UK that will keep sending us oil until they run out of exportable surpluses. Unfortunately, for the UK this is already the case. Even America's best friend to the north, Canada, only has a few years before its citizens start to question selling of so much of its oil to the US.Most large oil exporters are monuments to political instability. Iraq and Nigeria are currently in death spirals that could easily lead to serious reductions in their oil exports during the next year or so. The political leadership of Iran and Venezuela at the moment seems to be doing their best to get bombed by somebody or other. At least they are ideologically screwing up their domestic petroleum industries to the point where their ability to export current quantities of oil has a very short half-life.

Then we have the global warming dots: meltings, droughts, famines, hurricanes, and you name it. While the US, at the minute, seems inclined not to do much about this until Wall Street actually goes under water, a critical mass of public opinion seems to be forming. Short of imposing a 50 mph speed limit, and rationing or taxing the dickens out of fossil fuels, there does not seem to be much the US can do about greenhouse emissions in the short run.

Any serious, rapid, governmental action to cut emissions will of course have a serious impact on the last set of dots: the global economy. Here the question is easy. Do economic hard times come before or after peak oil? It should be obvious to everyone by now that if you take away a share of the world's oil and gas consumption, you are going to have some really serious economic problems. You can pick your own word to describe this phenomenon depending on how bad you think it is going to be Recession? Depression? Collapse? Armageddon? The key question is whether the economic troubles come before or after oil, for one reason or another, becomes very expensive and scarce. Many observers think there are serious economic troubles just ahead stemming from negative savings in the US, the housing bubble, collapse of Detroit, balance of payments, value of the dollar, or any number of other factors. Where does this leave us? To anyone who cares to look, the dots are already connected and they spell big, big trouble just ahead. The dots are flashing bright red. The alarm bells are sounding. The klaxons are blaring. But few are noticing. As a nation, we are so engrossed with Wal-Mart's latest sales figures, interest rates, and surging in the streets of Baghdad, that we have failed to notice the cliff just ahead. Someday, the historians will say "on this one, connecting the dots didn't make any difference after all.

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The Peak Oil Crisis: Congressional Hearings - Round #2 By Tom Whipple Thursday, 18 January 2007 The first congressional hearings on peak oil were held in December 2005 when a subcommittee of the House Energy and Commerce Committee had a half-day session devoted to the topic. At the hearing several luminaries of the peak oil community testified that indeed the world was about to start running short of cheap, easy to find oil and that indeed there would be serious consequences for the industrialized world. This view was countered by the man from Cambridge Energy Research who testified that to the contrary, world oil production could continue to grow for decades, never really would peak, and this was a problem for future generations. Happy motoring everyone!This apparently was just what the good Congressmen wanted to hear at the time, for after a few desultory comments about how the oil wells back in my district are still pumping away, the matter was forgotten. What a difference a year makes. In the intervening 13 months, the world burned up an additional 31 billion barrels of cheap oil, gasoline flew way up and then way down, and more importantly the international scene with respect to the future of oil production grew far darker.This time, the hearings were held by the Senate Committee on Energy and Natural Resources. They approached the subject from the perspective of the national security implications of our dependence on foreign oil supplies. By skipping over the arguments on the size of the worlds remaining oil reserves and focusing just on who owned these reserves and what they were going to do with them, the Committee was able to achieve a remarkable amount of bi-partisan agreement that the country is facing a very big problem.In a remarkable display of just how far we have come recently, the Chief Economist of the International Energy Agency told the Committee that he expected non-OPEC produced oil to peak within ten years. Therefore, most of the projected growth in world oil production will have to come from the OPEC nations. He then went on to explain that while the IEA thinks the OPEC states will have enough reserves to increase production, OPEC does such a good job of hiding the true status of their reserves the IEA cant be sure. The heart of the hearings focused on the idea that 75 percent of the worlds oil reserves are now in the hands of national state-controlled oil companies and this percentage is expected to keep growing. High oil prices are making these oil exporting countries so rich, they really dont need the international oil companies, their capital or their technical expertise anymore. Moreover, these energy-exporters are now in a position to use the political leverage from their growing oil and natural gas monopoly against the political interests of the US and EU. If this was not enough to worry the committee, one speaker raised the specter of a Sino-Russian axis of oil that, when coupled with the massive Iranian reserves of natural gas, could offset the USs superpower hegemony in world affairs. This is getting scarier all the time.The notion of energy independence was soundly rejected by several panelists. As one panelist said, simply put, there is no economically plausible scenario for a strategically meaningful reduction in the dependence of the United States and its allies on imported hydrocarbons during the next quarter century.The speakers, all certified members of the US foreign policy establishment, made clear and convincing cases that alarming times are ahead. The solutions ranged from the usual, efficiency, biofuels, electric cars, to more innovative ones such as coming to a comprehensive, grand settlement with Iran and an energy/environmental pact with China.Reactions from the senators were nearly all positive with several noting bold and dramatic changes in US policy are needed to deal with this geopolitical threat. Nearly all accepted the assertion of several panelists that energy independence was a myth that could never be achieved voluntarily as it would require unacceptable changes to the American lifestyle. By forgoing any discussion that world oil production just might be peaking in the near future, the ambiance of the hearing lost a certain sense of urgency. One panelist did mention, however, that remedies such as biofuels, electric cars, and tax breaks for renewables would take decades to have any real effect, so hard times are ahead.The hearings gave every indication of having made an impact on the committee. One member mentioned that additional hearings to explore all the issues that were raised in more detail would be helpful. Another outspokenly conservative member noted that while he was adamantly opposed to wasting the peoples money, now that he could see the growing national security aspect of the US energy situation, it was time for action.Capitol Hill clearly is starting to move on energy issues. During the hearing, the chairman mentioned that the committee would be holding an all-day conference on biofuels on February 1. Chairmen of the House and Senate agriculture committees say the next farm package is going to be driven largely by energy issues for the first time, thanks to fears about energy security and greenhouse gases.So far tough issues such as ordering Detroit to quit building SUVs, or lowering the speed limit back down to 55 mph, or enacting significant gas taxes, are not on the agenda. However, these can wait until inevitable crisis actually comes. Only in Washington can we make more progress on mitigating the effects of peak oil if we dont actually mention what we are mitigating.

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Edits the prestigious newsletter The Complete Investor.Renowned for consistently finishing in the top leaders in the annual stock picking contests of the Wall Street Journal and Forbes MagazinePresident of Leeb Capital Managment

Believes the oil situation is more than an Energy Crisis or Economic Crisis, it is evolving into a Civilization Threatening crisis.Alarmed at the extent to which our nations leaders and experts remain in denial of the problem

We are not convinced that our societys leaders will respond to the threat of an energy shortfall in time to prevent widespread hardship. Civilizations throughout history have suffered catastrophic downfalls because of exactly the same type of situation we find ourselves in today a shortage of a crucial resource and a leadership unwilling to acknowledge or deal with the problem.

This crisis could arrive full blown and in a very short period of time. The energy crisis that is upon us will be the biggest problem our civilization has ever faced. The coming energy crisis will be permanent.

The problem with rising energy costs is that they are both inflationary and deflationary at the same time, which makes it difficult for the Federal Reserve to choose the right strategy.

If we are lucky we will get by with double digit inflation and double digit unemployment. If we are not lucky we will be forced into a deep depression

Congressman Bartlett & Udall

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109th CONGRESS1st SessionH. RES. 507Expressing the sense of the House of Representatives that the United States, in collaboration with other international allies, should establish an energy project with the magnitude, creativity, and sense of urgency that was incorporated in the `Man on the Moon' project to address the inevitable challenges of `Peak Oil' . IN THE HOUSE OF REPRESENTATIVES

October 24, 2005Mr. BARTLETT of Maryland (for himself, Mr. UDALL of New Mexico, Mr. GOODE, Mr. GRIJALVA, Mr. JONES of North Carolina, Mr. TANCREDO, Mr. GINGREY, Mr. KUHL of New York, Mr. ISRAEL, Mr. BUTTERFIELD, Mr. UDALL of Colorado, Mr. VAN HOLLEN, Mr. GILCHREST, and Mr. WYNN) submitted the following resolution; which was referred to the Committee on Energy and Commerce

Resolved, That it is the sense of the House of Representatives that--(1) in order to keep energy costs affordable, curb our environmental impact, and safeguard economic prosperity, including our trade deficit, the United States must move rapidly to increase the productivity with which it uses fossil fuel, and to accelerate the transition to renewable fuels and a sustainable, clean energy economy; and(2) the United States, in collaboration with other international allies, should establish an energy project with the magnitude, creativity, and sense of urgency of the `Man on the Moon' project to develop a comprehensive plan to address the challenges presented by Peak Oil .

Studies and Reports

IEA World Energy Outlook 06London Financial Times 11/06

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The International Energy Agency on Tuesday warned that the world faced the twin threat of not having enough energy and damaging the environment by using too much of it. Current trends in energy consumption are neither secure nor sustainable economically, environmentally or sociallyThe energy watchdog warned that the oil fields that Europe and the US had come to depend on to reduce their reliance on Opec, the cartel that supplies 40 per cent of the worlds oil, would peak within the next ten years. Gerald Doucet, secretary general of the world energy council, said that in this report the IEA was dropping its guard and telling it as it was, being much more frank about what was really required.

NY Times Editorialby Robert B. Semple Jr. March 200661

Peak Oil is only starting to get the attention it deserves. The Age of Oil -- 100-plus years of astonishing economic growth made possible by cheap, abundant oil -- could be ending without our really being aware of it. Oil is a finite commodity.

At some point even the vast reservoirs of Saudi Arabia will run dry. But before that happens there will come a day when oil production "peaks," when demand overtakes supply (and never looks back), resulting in large and possibly catastrophic price increases that could make today's $60-a-barrel oil look like chump change. Unless, of course, we begin to develop substitutes for oil. Or begin to live more frugally. Or both. The concept of peak oil has not been widely written about. But people are talking about it now. It deserves a careful look -- largely because it is almost certainly correct."

Peter Maass NY Times 8/21/05

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If recent trends hold, there is little reason to expect that exploration success will dramatically improve in the future. . . . The image is one of a world moving from a long period in which reserves additions were much greater than consumption to an era in which annual additions are falling increasingly short of annual consumption. This is but one of a number of trends that suggest the world is fast approaching the inevitable peaking of conventional world oil production.

The Breaking Point By Peter Maass The New York Times Sunday 21 August 2005

Oil Runs through It...for Now: Shaybah, one of Saudi Arabia's oil fields, which all told can produce 10.5 million barrels of oil a day. The Saudis say they can boost production to 12.5 million barrels a day, or 15 million, or more. But there is a limit to how much you can ask of the earth, and it is fast approaching, some experts say. (Photo: George Steinmetz / NYT) The largest oil terminal in the world, Ras Tanura, is located on the eastern coast of Saudi Arabia, along the Persian Gulf. From Ras Tanura's control tower, you can see the classic totems of oil's dominion - supertankers coming and going, row upon row of storage tanks and miles and miles of pipes. Ras Tanura, which I visited in June, is the funnel through which nearly 10 percent of the world's daily supply of petroleum flows. Standing in the control tower, you are surrounded by more than 50 million barrels of oil, yet not a drop can be seen. The oil is there, of course. In a technological sleight of hand, oil can be extracted from the deserts of Arabia, processed to get rid of water and gas, sent through pipelines to a terminal on the gulf, loaded onto a supertanker and shipped to a port thousands of miles away, then run through a refinery and poured into a tanker truck that delivers it to a suburban gas station, where it is pumped into an SUV - all without anyone's actually glimpsing the stuff. So long as there is enough oil to fuel the global economy, it is not only out of sight but also out of mind, at least for consumers. I visited Ras Tanura because oil is no longer out of mind, thanks to record prices caused by refinery shortages and surging demand - most notably in the United States and China - which has strained the capacity of oil producers and especially Saudi Arabia, the largest exporter of all. Unlike the 1973 crisis, when the embargo by the Arab members of the Organization of Petroleum Exporting Countries created an artificial shortfall, today's shortage, or near-shortage, is real. If demand surges even more, or if a producer goes offline because of unrest or terrorism, there may suddenly not be enough oil to go around. As Aref al-Ali, my escort from Saudi Aramco, the giant state-owned oil company, pointed out, "One mistake at Ras Tanura today, and the price of oil will go up." This has turned the port into a fortress; its entrances have an array of gates and bomb barriers to prevent terrorists from cutting off the black oxygen that the modern world depends on. Yet the problem is far greater than the brief havoc that could be wrought by a speeding zealot with 50 pounds of TNT in the trunk of his car. Concerns are being voiced by some oil experts that Saudi Arabia and other producers may, in the near future, be unable to meet rising world demand. The producers are not running out of oil, not yet, but their decades-old reservoirs are not as full and geologically spry as they used to be, and they may be incapable of producing, on a daily basis, the increasing volumes of oil that the world requires. "One thing is clear," warns Chevron, the second-largest American oil company, in a series of new advertisements, "the era of easy oil is over." In the past several years, the gap between demand and supply, once considerable, has steadily narrowed, and today is almost negligible. The consequences of an actual shortfall of supply would be immense. If consumption begins to exceed production by even a small amount, the price of a barrel of oil could soar to triple-digit levels. This, in turn, could bring on a global recession, a result of exorbitant prices for transport fuels and for products that rely on petrochemicals - which is to say, almost every product on the market. The impact on the American way of life would be profound: cars cannot be propelled by roof-borne windmills. The suburban and exurban lifestyles, hinged to two-car families and constant trips to work, school and Wal-Mart, might become unaffordable or, if gas rationing is imposed, impossible. Carpools would be the least imposing of many inconveniences; the cost of home heating would soar - assuming, of course, that climate-controlled habitats do not become just a fond memory. But will such a situation really come to pass? That depends on Saudi Arabia. To know the answer, you need to know whether the Saudis, who possess 22 percent of the world's oil reserves, can increase their country's output beyond its current limit of 10.5 million barrels a day, and even beyond the 12.5-million-barrel target it has set for 2009. (World consumption is about 84 million barrels a day.) Saudi Arabia is the sole oil superpower. No other producer possesses reserves close to its 263 billion barrels, which is almost twice as much as the runner-up, Iran, with 133 billion barrels. New fields in other countries are discovered now and then, but they tend to offer only small increments. For example, the much-contested and as-yet-unexploited reserves in the Alaska National Wildlife Refuge are believed to amount to about 10 billion barrels, or just a fraction of what the Saudis possess. But the truth about Saudi oil is hard to figure out. Oil reservoirs cannot be inventoried like wood in a wilderness: the oil is underground, unseen by geologists and engineers, who can, at best, make highly educated guesses about how much is underfoot and how much can be extracted in the future. And there is a further obstacle: the Saudis will not let outsiders audit their confidential data on reserves and production. Oil is an industry in which not only is the product hidden from sight but so is reliable information about it. And because we do not know when a supply-demand shortfall might arrive, we do not know when to begin preparing for it, so as to soften its impact; the economic blow may come as a sledgehammer from the darkness. Of course the Saudis do have something to say about this prospect. Before journeying to the kingdom, I went to Washington to hear the Saudi oil minister, Ali al-Naimi, speak at an energy conference in the mammoth Ronald Reagan Building and International Trade Center, not far from the White House. Naimi was the star attraction at a gathering of the American petro-political nexus. Samuel Bodman, the U.S. energy secretary, was on the dais next to him. David O'Reilly, chairman and C.E.O. of Chevron, was waiting in the wings. The moderator was an minence grise of the oil world, James Schlesinger, a former energy secretary, defense secretary and CIA director. "I want to assure you here today that Saudi Arabia's reserves are plentiful, and we stand ready to increase output as the market dictates," said Naimi, dressed in a gray business suit and speaking with only a slight Arabic accent. He addressed skeptics who contend that Saudi reservoirs cannot be tapped for larger amounts of oil. "I am quite bullish on technology as the key to our energy future," he said. "Technological innovation will allow us to find and extract more oil around the world." He described the task of increasing output as just "a question of investment" in new wells and pipelines, and he noted that consuming nations urgently need to build new refineries to process increased supplies of crude. "There is absolutely no lack of resources worldwide," he repeated. His assurances did not assure. A barrel of oil cost $55 at the time of his speech; less than three months later, the price had jumped by 20 percent. The truth of the matter - whether the world will really have enough petroleum in the years ahead - was as well concealed as the millions of barrels of oil I couldn't see at Ras Tanura. For 31 years, Matthew Simmons has prospered as the head of his own firm, Simmons & Company International, which advises energy companies on mergers and acquisitions. A member of the Council on Foreign Relations, a graduate of the Harvard Business School and an unpaid adviser on energy policy to the 2000 presidential campaign of George W. Bush, he would be a card-carrying member of the global oil nomenclatura, if cards were issued for such things. Yet he is one of the principal reasons the oil world is beginning to ask hard questions of itself. Two years ago, Simmons went to Saudi Arabia on a government tour for business executives. The group was presented with the usual dog-and-pony show, but instead of being impressed, as most visitors tend to be, with the size and expertise of the Saudi oil industry, Simmons became perplexed. As he recalls in his somewhat heretical new book, "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," a senior manager at Aramco told the visitors that "fuzzy logic" would be used to estimate the amount of oil that could be recovered. Simmons had never heard of fuzzy logic. What could be fuzzy about an oil reservoir? He suspected that Aramco, despite its promises of endless supplies, might in fact not know how much oil remained to be recovered. Simmons returned home with an itch to scratch. Saudi Arabia was one of the charter members of OPEC, founded in 1960 in Baghdad to coordinate the policies of oil producers. Like every OPEC country, Saudi Arabia provides only general numbers about its output and reserves; it does not release details about how much oil is extracted from each reservoir and what methods are used to extract that oil, and it does not permit audits by outsiders. The condition of Saudi fields, and those of other OPEC nations, is a closely guarded secret. That's largely because OPEC quotas, which were first imposed in 1983 to limit the output of member countries, were based on overall reserves; the higher an OPEC member's reserves, the higher its quota. It is widely believed that most, if not all, OPEC members exaggerated the sizes of their reserves in order to have the largest possible quota - and thus the largest possible revenue stream. In the days of excess supply, bankers like Simmons did not know, or care, about the fudging; whether or not reserves were hyped, there was plenty of oil coming out of the ground. Through the 1970's, 80's and 90's, the capacity of OPEC and non-OPEC countries exceeded demand, and that's why OPEC imposed a quota system - to keep some product off the market (although many OPEC members, seeking as much revenue as possible, quietly sold more oil than they were supposed to). Until quite recently, the only reason to fear a shortage was if a boycott, war or strike were to halt supplies. Few people imagined a time when supply would dry up because of demand alone. But a steady surge in demand in recent years - led by China's emergence as a voracious importer of oil - has changed that. This demand-driven scarcity has prompted the emergence of a cottage industry of experts who predict an impending crisis that will dwarf anything seen before. Their point is not that we are running out of oil, per se; although as much as half of the world's recoverable reserves are estimated to have been consumed, about a trillion barrels remain underground. Rather, they are concerned with what is called "capacity" - the amount of oil that can be pumped to the surface on a daily basis. These experts - still a minority in the oil world - contend that because of the peculiarities of geology and the limits of modern technology, it will soon be impossible for the world's reservoirs to surrender enough oil to meet daily demand. One of the starkest warnings came in a February report commissioned by the United States Department of Energy's National Energy Technology Laboratory. "Because oil prices have been relatively high for the past decade, oil companies have conducted extensive exploration over that period, but their results have been disappointing," stated the report, assembled by Science Applications International, a research company that works on security and energy issues. "If recent trends hold, there is little reason to expect that exploration success will dramatically improve in the future. . . . The image is one of a world moving from a long period in which reserves additions were much greater than consumption to an era in which annual additions are falling increasingly short of annual consumption. This is but one of a number of trends that suggest the world is fast approaching the inevitable peaking of conventional world oil production." The reference to "peaking" is not a haphazard word choice - "peaking" is a term used in oil geology to define the critical point at which reservoirs can no longer produce increasing amounts of oil. (This tends to happen when reservoirs are about half-empty.) "Peak oil" is the point at which maximum production is reached; afterward, no matter how many wells are drilled in a country, production begins to decline. Saudi Arabia and other OPEC members may have enough oil to last for generations, but that is no longer the issue. The eventual and painful shift to different sources of energy - the start of the post-oil age - does not begin when the last drop of oil is sucked from under the Arabian desert. It begins when producers are unable to continue increasing their output to meet rising demand. Crunch time comes long before the last drop. "The world has never faced a problem like this," the report for the Energy Department concluded. "Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary." Most experts do not share Simmons's concerns about the imminence of peak oil. One of the industry's most prominent consultants, Daniel Yergin, author of a Pulitzer Prize-winning book about petroleum, dismisses the doomsday visions. "This is not the first time that the world has 'run out of oil,"' he wrote in a recent Washington Post opinion essay. "It's more like the fifth. Cycles of shortage and surplus characterize the entire history of the oil industry." Yergin says that a number of oil projects that are under construction will increase the supply by 20 percent in five years and that technological advances will increase the amount of oil that can be recovered from existing reservoirs. (Typically, with today's technology, only about 40 percent of a reservoir's oil can be pumped to the surface.) Yergin's bullish view has something in common with the views of the pessimists - it rests on unknowns. Will the new projects that are under way yield as much oil as their financial backers hope? Will new technologies increase recovery rates as much as he expects? These questions are next to impossible to answer because coaxing oil out of the ground is an extraordinarily complex undertaking. The popular notion of reservoirs as underground lakes, from which wells extract oil like straws sucking a milkshake from a glass, is incorrect. Oil exists in drops between and inside porous rocks. A new reservoir may contain sufficient pressure to make these drops of oil flow to the surface in a gusher, but after a while - usually within a few years and often sooner than that - natural pressure lets up and is no longer sufficient to push oil to the surface. At that point, "secondary" recovery efforts are begun, like pumping water or gas into the reservoirs to increase the pressure. This process is unpredictable; reservoirs are extremely temperamental. If too much oil is extracted too quickly or if the wrong types or amounts of secondary efforts are employed, the amount of oil that can be recovered from a field can be greatly reduced; this is known in the oil world as "damaging a reservoir." A widely cited example is Oman: in 2001, its daily production reached more than 960,000 barrels, but then suddenly declined, despite the use of advanced technologies. Today, Oman produces 785,000 barrels of oil a day. Herman Franssen, a consultant who worked in Oman for a decade, sees that country's experience as a possible lesson in the limits of technology for other producers that try to increase or maintain high levels of output. "They reached a million barrels a day, and then a few years later production collapsed," Franssen said in a phone interview. "They used all these new technologies, but they haven't been able to stop the decline yet." The vague production and reserve data that gets published does not begin to tell the whole story of an oil field's health, production potential or even its size. For a clear-as-possible picture of a country's oil situation, you need to know what is happening in each field - how many wells it has, how much oil each well is producing, what recovery methods are being used and how long they've been used and the trend line since the field went into production. Data of that sort are typically not released by state-owned companies like Saudi Aramco. As Matthew Simmons searched for clues to the truth of the Saudi situation, he immersed himself in the minutiae of oil geology. He realized that data about Saudi fields might be found in the files of the Society of Petroleum Engineers. Oil engineers, like most professional groups, have regular conferences at which they discuss papers that delve into the work they do. The papers, which focus on particular wells that highlight a problem or a solution to a problem, are presented and debated at the conferences and published by the SPE - and then forgotten. Before Simmons poked around, no one had taken the time to pull together the SPE papers that involved Saudi oil fields and review them en masse. Simmons found more than 200 such papers and studied them carefully. Although the papers cover only a portion of the kingdom's wells and date back, in some cases, several decades, they constitute perhaps the best public data about the condition and prospects of Saudi reservoirs. Ghawar is the treasure of the Saudi treasure chest. It is the largest oil field in the world and has produced, in the past 50 years, about 55 billion barrels of oil, which amounts to more than half of Saudi production in that period. The field currently produces more than five million barrels a day, which is about half of the kingdom's output. If Ghawar is facing problems, then so is Saudi Arabia and, indeed, the entire world. Simmons found that the Saudis are using increasingly large amounts of water to force oil out of Ghawar. Most of the wells are concentrated in the northern portion of the 174-mile-long field. That might seem like good news - when the north runs low, the Saudis need only to drill wells in the south. But in fact it is bad news, Simmons concluded, because the southern portions of Ghawar are geologically more difficult to draw oil from. "Someday (and perhaps that day will be soon), the remarkably high well flow rates at Ghawar's northern end will fade, as reservoir pressures finally plummet," Simmons writes in his book. "Then, Saudi Arabian oil output will clearly have peaked. The death of this great king" - meaning Ghawar - "leaves no field of vaguely comparable stature in the line of succession. Twilight at Ghawar is fast approaching." He goes on: "The geological phenomena and natural driving forces that created the Saudi oil miracle are conspiring now in normal and predictable ways to bring it to its conclusion, in a time frame potentially far shorter than officialdom would have us believe." Simmons concludes, "Saudi Arabia clearly seems to be nearing or at its peak output and cannot materially grow its oil production."

Future Shock? Sadad al-Husseini, a former Aramco executive, sees an oil shortage looming. But he says that it is consumers, not producers, who are to blame. (Photo: Stephanie Kuykendal / Corbis) Saudi officials belittle Simmons's work. Nansen Saleri, a senior Aramco official, has described Simmons as a banker "trying to come across as a scientist." In a speech last year, Saleri wryly said, "I can read 200 papers on neurology, but you wouldn't want me to operate on your relatives." I caught up with Simmons in June, during a trip he made to Manhattan to talk with a group of oil-shipping executives. The impression he gives is of an enthusiastic inventor sharing a discovery that took him by surprise. He has a certain wide-eyed wonder in his regard, as if a bit of mystery can be found in everything that catches his eye. And he has a rumpled aspect - thinning hair slightly askew, shirt sleeves a fraction too long. Though he delivers a bracing message, his discourse can wander. He is a successful businessman, and it is clear that he did not achieve his position by being a man of impeccable convention. He certainly has not lost sight of the rule that people who shout "the end is nigh" do not tend to be favorably reviewed by historians, let alone by their peers. He notes in his book that way back in 1979, The New York Times published an investigative story by Seymour Hersh under the headline "Saudi Oil Capacity Questioned." He knows that in past decades the Cassandras failed to foresee new technologies, like deep-water and horizontal drilling, that provided new sources of oil and raised the amount of oil that can be recovered from reservoirs. But Simmons says that there are only so many rabbits technology can pull out of its petro-hat. He impishly notes that if the Saudis really wanted to, they could easily prove him wrong. "If they want to satisfy people, they should issue field-by-field production reports and reserve data and have it audited," he told me. "It would then take anybody less than a week to say, 'Gosh, Matt is totally wrong,' or 'Matt actually might be too optimistic."' Simmons has a lot riding on his campaign - not only his name but also his business, which would not be rewarded if he is proved to be a fool. What, I asked, if the data show that the Saudis will be able to sustain production of not only 12.5 million barrels a day - their target for 2009 - but 15 million barrels, which global demand is expected to require of them in the not-too-distant future? "The odds of them sustaining 12 million barrels a day is very low," Simmons replied. "The odds of them getting to 15 million for 50 years - there's a better chance of me having Bill Gates's net worth, and I wouldn't bet a dime on that forecast." The gathering of executives took place in a restaurant at Chelsea Piers; about 35 men sat around a set of tables as the host introduced Simmons. He rambled a bit but hit his talking points, and the executives listened raptly; at one point, the man on my right broke into a soft whistle, of the sort that means "Holy cow." Simmons didn't let up. "We're going to look back at history and say $55 a barrel was cheap," he said, recalling a TV interview in which he predicted that a barrel might hit triple digits. He said that the anchor scoffed, in disbelief, "A hundred dollars?" Simmons replied, "I wasn't talking about low triple digits." The onset of triple-digit prices might seem a blessing for the Saudis - they would receive greater amounts of money for their increasingly scarce oil. But one popular misunderstanding about the Saudis - and about OPEC in general - is that high prices, no matter how high, are to their benefit. Although oil costing more than $60 a barrel hasn't caused a global recession, that could still happen: it can take a while for high prices to have their ruinous impact. And the higher above $60 that prices rise, the more likely a recession will become. High oil prices are inflationary; they raise the cost of virtually everything - from gasoline to jet fuel to plastics and fertilizers - and that means people buy less and travel less, which means a drop-off in economic activity. So after a brief windfall for producers, oil prices would slide as recession sets in and once-voracious economies slow down, using less oil. Prices have collapsed before, and not so long ago: in 1998, oil fell to $10 a barrel after an untimely increase in OPEC production and a reduction in demand from Asia, which was suffering through a financial crash. Saudi Arabia and the other members of OPEC entered crisis mode back then; adjusted for inflation, oil was at its lowest price since the cartel's creation, threatening to feed unrest among the ranks of jobless citizens in OPEC states. "The Saudis are very happy with oil at $55 per barrel, but they're also nervous," a Western diplomat in Riyadh told me in May, referring to the price that prevailed then. (Like all the diplomats I spoke to, he insisted on speaking anonymously because of the sensitivities of relations with Saudi Arabia.) "They don't know where this magic line has moved to. Is it now $65? Is it $75? Is it $80? They don't want to find out, because if you did have oil move that far north . . . the chain reaction can come back to a price collapse again." High prices can have another unfortunate effect for producers. When crude costs $10 a barrel or even $30 a barrel, alternative fuels are prohibitively expensive. For example, Canada has vast amounts of tar sands that can be rendered into heavy oil, but the cost of doing so is quite high. Yet those tar sands and other alternatives, like bio-ethanol, hydrogen fuel cells and liquid fuel from natural gas or coal, become economically viable as the going rate for a barrel rises past, say, $40 or more, especially if consuming governments choose to offer their own incentives or subsidies. So even if high prices don't cause a recession, the Saudis risk losing market share to rivals into whose non-fundamentalist hands Americans would much prefer to channel their energy dollars. A concerted push for greater energy conservation in the United States, which consumes one-quarter of the world's oil (mostly to fuel our cars, as gasoline), would hurt producing nations, too. Basically, any significant reduction in the demand for oil would be ruinous for OPEC members, who have little to offer the world but oil; if a substitute can be found, their future is bleak. Another Western diplomat explained the problem facing the Saudis: "You want to have the price as high as possible without sending the consuming nations into a recession and at the same time not have the price so high that it encourages alternative technologies." From the American standpoint, one argument in favor of conservation and a switch to alternative fuels is that by limiting oil imports, the United States and its Western allies would reduce their dependence on a potentially unstable region. (In fact, in an effort to offset the risks of relying on the Saudis, America's top oil suppliers are Canada and Mexico.) In addition, sending less money to Saudi Arabia would mean less money in the hands of a regime that has spent the past few decades doling out huge amounts of its oil revenue to mosques, madrassas and other institutions that have fanned the fires of Islamic radicalism. The oil money has been dispensed not just by the Saudi royal family but by private individuals who benefited from the oil boom - like Osama bin Laden, whose ample funds, probably eroded now, came from his father, a construction magnate. Without its oil windfall, Saudi Arabia would have had a hard time financing radical Islamists across the globe. For the Saudis, the political ramifications of reduced demand for its oil would not be negligible. The royal family has amassed vast personal wealth from the country's oil revenues. If, suddenly, Saudis became aware that the royal family had also failed to protect the value of the country's treasured resource, the response could be severe. The mere admission that Saudi reserves are not as impressively inexhaustible as the royal family has claimed could lead to hard questions about why the country, and the world, had been misled. With the death earlier this month of the long-ailing King Fahd, the royal family is undergoing another period of scrutiny; the new king, Abdullah, is in his 80's, and the crown prince, his half-brother Sultan, is in his 70's, so the issue of generational change remains to be settled. As long as the country is swimming in petro-dollars - even as it is paying off debt accrued during its lean years - everyone is relatively happy, but that can change. One diplomat I spoke to recalled a comment from Sheik Ahmed Zaki Yamani, the larger-than-life Saudi oil minister during the 1970's: "The Stone Age didn't end for lack of stone, and the oil age will end long before the world runs out of oil."

Oil fires signal another well being put online at Shaybah, an oil field in Saudi Arabia, the world's sole oil superpower. (Photo: George Steinmetz / NYT) Until now, the Saudis had an excess of production capacity that allowed them, when necessary, to flood the market to drive prices down. They did that in 1990, when the Iraqi invasion of Kuwait eliminated not only Kuwait's supply of oil but also Iraq's. The Saudis functioned, as they always had, as the central bank of oil, releasing supply to the market when it was needed and withdrawing supply to keep prices from going lower than the cartel would have liked. In other words, they controlled not only the price of oil but their own destiny as well. "That is what the world has called on them to do before - turn on the taps to produce more and get prices down," a senior Western diplomat in Riyadh told me recently. "Decreasing prices used to keep out alternative fuels. I don't see how they're able to do that anymore. This is a huge change, and it is a big step in the move to whatever is coming next. That's what's really happening." Without the ability to flood the markets with oil, the Saudis are resorting to flooding the market with promises; it is a sort of petro-jawboning. That's why Ali al-Naimi, the oil minister, told his Washington audience that Saudi Arabia has embarked on a crash program to raise its capacity to 12.5 million barrels a day by 2009 and even higher in the years after that. Naimi is not unlike a factory manager who needs to promise the moon to his valuable clients, for fear of losing or alarming them. He has no choice. The moment he says anything bracing, the touchy energy markets will probably panic, pushing prices even higher and thereby hastening the onset of recession, a switch to alternative fuels or new conservation efforts - or all three. Just a few words of honest caution could move the markets; Naimi's speeches are followed nearly as closely in the financial world as those of Alan Greenspan. I journeyed to Saudi Arabia to interview Naimi and other senior officials, to get as far beyond their prepared remarks as might be possible. Although I was allowed to see Ras Tanura, my interview requests were denied. I was invited to visit Aramco's oil museum in Dhahran, but that is something a Saudi schoolchild can do on a field trip. It was a "show but don't tell" policy. I was able to speak about production issues only with Ibrahim al-Muhanna, the oil ministry spokesman, who reluctantly met me over coffee in the lobby of my hotel in Riyadh. He defended Saudi Arabia's refusal to share more data, noting that the Saudis are no different from most oil producers. "They will not tell you," he said. "Nobody will. And that is not going to change." Referring to the fact that Saudi Arabia is often called the central bank of oil, he added: "If an outsider goes to the Fed and asks, 'How much money do you have?' they will tell you. If you say, 'Can I come and count it?' they will not let you. This applies to oil companies and oil countries." I mentioned to Muhanna that many people think his government's "trust us" stance is not convincing in light of the cheating that has gone on within OPEC and in the industry as a whole; even Royal Dutch/Shell, a publicly listed oil company that undergoes regular audits, has admitted that it overstated its 2002 reserves by 23 percent. "There is no reason for any country or company to lie," Muhanna replied. "There is a lot of oil around." I didn't need to ask about Simmons and his peak-oil theory; when I met Muhanna at the conference in Washington, he nearly broke off our conversation at the mention of Simmons's name. "He does not know anything," Muhanna said. "The only thing he has is a big mouth. We should not pay attention to him. Either you believe us or you don't." So whom to believe? Before leaving New York for Saudi Arabia, I was advised by several oil experts to try to interview Sadad al-Husseini, who retired last year after serving as Aramco's top executive for exploration and production. I faxed him in Dhahran and received a surprisingly quick reply; he agreed to meet me. A week later, after I arrived in Riyadh, Husseini e-mailed me, asking when I would come to Dhahran; in a follow-up phone call, he offered to pick me up at the airport. He was, it seemed, eager to talk. It can be argued that in a nation devoted to oil, Husseini knows more about it than anyone else. Born in Syria, Husseini was raised in Saudi Arabia, where his father was a government official whose family took on Saudi citizenship. Husseini earned a Ph.D. in geological sciences from Brown University in 1973 and went to work in Aramco's exploration department, eventually rising to the highest position. Until his retirement last year - said to have been caused by a top-level dispute, the nature of which is the source of many rumors - Husseini was a member of the company's board and its management committee. He is one of the most respected and accomplished oilmen in the world. After meeting me at the cavernous airport that serves Dhahran, he drove me in his luxury sedan to the villa that houses his private office. As we entered, he pointed to an armoire that displayed a dozen or so vials of black liquid. "These are samples from oil fields I discovered," he explained. Upstairs, there were even more vials, and he would have possessed more than that except, as he said, laughing, "I didn't start collecting early enough." We spoke for several hours. The message he delivered was clear: the world is heading for an oil shortage. His warning is quite different from the calming speeches that Naimi and other Saudis, along with senior American officials, deliver on an almost daily basis. Husseini explained that the need to produce more oil is coming from two directions. Most obviously, demand is rising; in recent years, global demand has increased by two million barrels a day. (Current daily consumption, remember, is about 84 million barrels a day.) Less obviously, oil producers deplete their reserves every time they pump out a barrel of oil. This means that merely to maintain their reserve base, they have to replace the oil they extract from declining fields. It's the geological equivalent of running to stay in place. Husseini acknowledged that new fields are coming online, like offshore West Africa and the Caspian basin, but he said that their output isn't big enough to offset this growing need. "You look at the globe and ask, 'Where are the big increments?' and there's hardly anything but Saudi Arabia," he said. "The kingdom and Ghawar field are not the problem. That misses the whole point. The problem is that you go from 79 million barrels a day in 2002 to 82.5 in 2003 to 84.5 in 2004. You're leaping by two million to three million a year, and if you have to cover declines, that's another four to five million." In other words, if demand and depletion patterns continue, every year the world will need to open enough fields or wells to pump an additional six to eight million barrels a day - at least two million new barrels a day to meet the rising demand and at least four million to compensate for the declining production of existing fields. "That's like a whole new Saudi Arabia every couple of years," Husseini said. "It can't be done indefinitely. It's not sustainable." Husseini speaks patiently, like a teacher who hopes someone is listening. He is in the enviable position of knowing what he talks about while having the freedom to speak openly about it. He did not disclose precise information about Saudi reserves or production - which remain the equivalent of state secrets - but he felt free to speak in generalities that were forthright, even when they conflicted with the reassuring statements of current Aramco officials. When I asked why he was willing to be so frank, he said it was because he sees a shortage ahead and wants to do what he can to avert it. I assumed that he would not be particularly distressed if his rivals in the Saudi oil establishment were embarrassed by his frankness. Although Matthew Simmons says it is unlikely that the Saudis will be able to produce 12.5 million barrels a day or sustain output at that level for a significant period of time, Husseini says the target is realistic; he says that Simmons is wrong to state that Saudi Arabia has reached its peak. But 12.5 million is just an interim marker, as far as consuming nations are concerned, on the way to 15 million barrels a day and beyond - and that is the point at which Husseini says problems will arise. At the conference in Washington in May, James Schlesinger, the moderator, conducted a question-and-answer session with Naimi at the conclusion of the minister's speech. One of the first questions involved peak oil: might it be true that Saudi Arabia, which has relied on the same reservoirs, and especially Ghawar, for more than five decades, is nearing the geological limit of its output? Naimi wouldn't hear of it. "I can assure you that we haven't peaked," he responded. "If we peaked, we would not be going to 12.5 and we would not be visualizing a 15-million-barrel-per-day production capacity. . . . We can maintain 12.5 or 15 million for the next 30 to 50 years." Experts like Husseini are very concerned by the prospect of trying to produce 15 million barrels a day. Even if production can be ramped up that high, geology may not be forgiving. Fields that are overproduced can drop off, in terms of output, quite sharply and suddenly, leaving behind large amounts of oil that cannot be coaxed out with existing technology. This is called trapped oil, because the rocks or sediment around it prevent it from escaping to the surface. Unless new technologies are developed, that oil will never be extracted. In other words, the haste to recover oil can lead to less oil being recovered. "You could go to 15, but that's when the questions of depletion rate, reservoir management and damaging the fields come into play," says Nawaf Obaid, a Saudi oil and security analyst who is regarded as being exceptionally well connected to key Saudi leaders. "There is an understanding across the board within the kingdom, in the highest spheres, that if you're going to 15, you'll hit 15, but there will be considerable risks . . . of a steep decline curve that Aramco will not be able to do anything about." Even if the Saudis are willing to risk damaging their fields, or even if the risk is overstated, Husseini points out a practical problem. To produce and sustain 15 million barrels a day, Saudi Arabia will have to drill a lot more wells and build a lot more pipelines and processing facilities. Currently, the global oil industry suffers a deficit of qualified engineers to oversee such projects and the equipment and the raw materials - for example, rigs and steel - to build them. These things cannot be wished from thin air or developed quickly enough to meet the demand. "If we had two dozen Texas A&M's producing a thousand new engineers a year and the industrial infrastructure in the kingdom, with the drilling rigs and power plants, we would have a better chance, but you cannot put that into place overnight," Husseini said. "Capacity is not just a function of reserves. It is a function of reserves plus know-how plus a commercial economic system that is designed to increase the resource exploitation. For example, in the U.S. you have infrastructure - there must be tens of thousands of miles of pipelines. If we, in Saudi Arabia, evolve to that level of commercial maturity, we could probably produce a heck of a lot more oil. But to get there is a very tedious, slow process." He worries that the rising global demand for oil will lead to the petroleum equivalent of running an engine at ever-increasing speeds without stopping to cool it down or change the oil. Husseini does not want to see the fragile and irreplaceable reservoirs of the Middle East become damaged through wanton overproduction. "If you are ramping up production so fast and jump from high to higher to highest, and you're not having enough time to do what needs to be done, to understand what needs to be done, then you can damage reservoirs," he said. "Systematic development is not just a matter of money. It's a matter of reservoir dynamics, understanding what's there, analyzing and understanding information. That's where people come in, experience comes in. These are not universally available resources." The most worrisome part of the crisis ahead revolves around a set of statistics from the Energy Information Administration, which is part of the U.S. Department of Energy. The EIA forecast in 2004 that by 2020 Saudi Arabia would produce 18.2 million barrels of oil a day, and that by 2025 it would produce 22.5 million barrels a day. Those estimates were unusual, though. They were not based on secret information about Saudi capacity, but on the projected needs of energy consumers. The figures simply assumed that Saudi Arabia would be able to produce whatever the United States needed it to produce. Just last month, the EIA suddenly revised those figures downward - not because of startling new information about world demand or Saudi supply but because the figures had given so much ammunition to critics. Husseini, for example, described the 2004 forecast as unrealistic. "That's not how you would manage a national, let alone an international, economy," he explained. "That's the part that is scary. You draw some assumptions and then say, 'O.K., based on these assumptions, let's go forward and consume like hell and burn like hell."' When I asked whether the kingdom could produce 20 million barrels a day - about twice what it is producing today from fields that may be past their prime - Husseini paused for a second or two. It wasn't clear if he was taking a moment to figure out the answer or if he needed a moment to decide if he should utter it. He finally replied with a single word: No. "It's becoming unrealistic," he said. "The expectations are beyond what is achievable. This is a global problem . . . that is not going to be solved by tinkering with the Saudi industry." It would be unfair to blame the Saudis alone for failing to warn of whatever shortages or catastrophes might lie ahead. In the political and corporate realms of the oil world, there are few incentives to be forthright. Executives of major oil companies have been reluctant to raise alarms; the mere mention of scarce supplies could alienate the governments that hand out lucrative exploration contracts and also send a message to investors that oil companies, though wildly profitable at the moment, have a Malthusian long-term future. Fortunately, that attitude seems to be beginning to change. Chevron's "easy oil is over" advertising campaign is an indication that even the boosters of an oil-drenched future are not as bullish as they once were. Politicians remain in the dark. During the 2004 presidential campaign, which occurred as gas prices were rising to record levels, the debate on energy policy was all but nonexistent. The Bush campaign produced an advertisement that concluded: "Some people have wacky ideas. Like taxing gasoline more so people drive less. That's John Kerry." Although many environmentalists would have been delighted if Kerry had proposed that during the campaign, in fact the ad was referring to a 50-cents-a-gallon tax that Kerry supported 11 years ago as part of a package of measures to reduce the deficit. (The gas tax never made it to a vote in the Senate.) Kerry made no mention of taxing gasoline during the campaign; his proposal for doing something about high gas prices was to pressure OPEC to increase supplies. Husseini, for one, doesn't buy that approach. "Everybody is looking at the producers to pull the chestnuts out of the fire, as if it's our job to fix everybody's problems," he told me. "It's not our problem to