Vol. 9, No. 22 Week of May 30, 2004
Providing coverage of Alaska and northern Canada's oil and gas industry

Herrera: Impressions from Berlin

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A report from Alaska oil and gas consultant on Peak Oil Conference

Roger Herrera

For Petroleum News

The concept that the world’s production of crude oil might be about to reach its maximum level before beginning an inevitable decline might seem like big yawn compared to the much larger problem of OPEC’s control of two-thirds of the world’s remaining oil reserves, or the worries of $40 a barrel oil. However for 300 attendees and 35 newspaper and TV representatives, the recent workshop meeting in Berlin of The Association for the Study of Peak Oil was remarkably sobering.

The argument of when a finite resource, such as oil, might begin to run out, is not new.

The peaking of America’s domestic oil production was accurately forecast in advance and occurred in about 1970 and, since then, more than 40 oil producing countries have similarly seen their oil output peak and begin to decline.

But the constantly reported oil riches of the Middle East have dulled our concerns for a world peak in oil production. After all, we fought a war because of the destruction of Kuwaiti oil wells in 1992 and a significant part of our foreign policy seems to demand good relations with Saudi Arabia. Those facts point to an expectation that we hope to benefit from that oil for a long time to come. The Arab control of that oil is surely the most important energy consideration of the moment.

Some believe Saudi Arabia close to maximum production

Not if you believe Dr Ali Samsam Bakhtiari whose family is part of the history of the oil era in Persia, and who has spent most of his life with the National Iranian Oil Co., or Matthew Simmons, chairman of an international energy investment banking firm in Houston, Texas. These two speakers at the workshop quietly outlined their reasons for believing that Saudi Arabia is probably close to its maximum production of oil at the present time and that the requests by world leaders for Saudi to “open the taps” and add 2 million barrels to the world’s supply, thus reducing the price, might not be possible.

They both acknowledged that the geological and reservoir data from Saudi Arabia is less than adequate to reach such drastic conclusions, but in recent years they have spent more time trying to analyze the true nature of the Saudi reserves than anyone outside the Kingdom, thus their opinions should be taken seriously.

If they are correct it might become apparent very quickly as shown by OPEC’s response to the international community’s request for an increase in production. The broader implications of their prognosis is that the Middle Eastern producers are now pumping oil at their maximum rate which strongly suggests that it is unlikely that the world’s production will ever grow from its present 80 million barrels a day. In other words, we may now be at Peak Oil production.

Davids vs. Goliaths

The Berlin meeting promised to be interesting because it pitted the proponents of fairly immediate peak oil against the Establishment, represented by the likes of BP, ExxonMobil, the International Energy Agency, the United States Geological Survey, the Energy Information Agency within the U.S. Department of Energy, and Aramco, the Saudi Oil Co.

Those represent fairly substantial Goliaths.

The Davids were Dr. Colin Campbell, an avuncular and amusing geologist from Ireland who has single handedly used his retirement to raise awareness of the probable imminence of Peak Oil, and Matthew Simmons, the above-mentioned energy investment banker.

Simmons is a superb analyst who has the singular skill of presenting complex data with believable clarity. They have lots of worthy, well qualified disciples, but the arguments between the two sides have usually been whether the data supports an imminent approach to reaching Peak Oil, or whether it will not occur for a decade or three. The Davids are worried that we should be already preparing for the inevitably decline in crude oil supply, while the Goliaths think that the world will have plenty of oil for at least 20 years of growth.

The workshop was not a disappointment. The two sides slogged it out, albeit, politely. The geological arguments were fascinating if only because they largely pitted former, older, oil company geologist against, current, younger, oil company geologists. Needless to say, the time gap between the two sides was not resolved — they agreed to differ.

But the rest of the conference attendees totally accepted the reality, sooner or later, of Peak Oil, and immediately initiated a serious debate of what nations need to do about it.

Davids triumph at conference

One had to conclude that the Davids triumphed on the day, and whether their timing is correct or not is immaterial because something needs to be done to face the aftermath of Peak Oil.

The conference, despite the international flavor of its attendees, hardly mentioned the 800 pound energy gorilla, the United States of America. The European Union feels big enough to look after itself, and nearly all the solutions to its energy future during the decline of oil are more concerned with reducing CO2 pollution than coping with the economic upheavals that oil shortages might bring about. The acceptance of Global Warming and the need to address it is a dangerous fundamental difference between the United States and Europe over our energy futures.

Perhaps Europe is premature in its acceptance of Peak Oil and man-induced global warming, but we need to appreciate that our reaction to either of these issues might be quite different from theirs. Time alone will tell who is correct and for the United States to accept the inevitability of Peak Oil might allow us to better prepare for the oil shortages to come.

Editor’s note: Roger Herrera is an oil and gas consultant based in Anchorage, Alaska, who works with Arctic Power in both Washington, D.C. and Anchorage. He is Petroleum News’ favorite “oil price guru,” as his predictions have always been accurate.

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