[R-G] Oil peak theorist warns of chaos, war

[Anthony Fenton]

Oil peak theorist warns of chaos, war
SHAWN McCARTHY
 From Tuesday's Globe and Mail
http://ago.mobile.globeandmail.com/generated/archive/RTGAM/html/20080407/wrpeakoil08.html

WASHINGTON — Matt Simmons sounds the alarm like the Cassandra of the  
oil industry, warning that crude production has peaked and that  
looming energy shortages could derail global growth and even spark  
armed conflict.

As a prominent “peak oil” theorist, the veteran oil industry financier  
paints a grim picture of a world facing resource scarcity. Still, it  
doesn't take a “peak-ist” to conclude that the global oil producers  
will find it increasingly difficult to keep up with growing demand.

He squared off yesterday against other experts who argue that the  
world has yet to reach the physical limits of oil production. But  
while they disagreed on the extent of the problem, the panelists at a  
U.S. Department of Energy conference in Washington concurred that  
future crude production will be constrained by physical, economic and  
political factors that add up to tight markets and higher oil prices.

Despite oil prices that have topped $100 (U.S.) a barrel, there was  
little sense at yesterday's conference, put on by the Department of  
Energy's Energy Information Administration, that high prices would  
spark either a boost in oil output or a sharp fall in global demand.

Record pump prices – and a sharply slowing economy – have cut into  
U.S. demand, which represents 25 per cent of the world's total. But  
analysts who follow the emerging economies said there is no sign yet  
that triple-digit crude prices have seriously dented demand in China  
or India.

Global demand for oil will continue to grow, analysts forecast, even  
as the developed world reduces consumption in the face of high prices  
and environmental concerns. Economic growth and rising living  
standards in developing countries like China, India and the Middle  
East will more than offset reduced energy consumption in the mature  
economies of North America and Europe.

The views of Mr. Simmons, who runs Houston-based Simmons & Assoc.  
investment bank, bordered on apocalyptic.

Oil shortages “could lead to social chaos and war,” he warned. “The  
issue is the most serious risk to sustaining the 21st century. Peak  
oil is real, and we have to take it seriously.” He argued that  
production of conventional crude peaked in May, 2005, at 74 million  
barrels a day.

Since then, the world has met rising consumption – now at about 88- 
million barrels a day – by cutting inventories, tapping natural gas  
liquids that typically are included in crude production figures and  
using better refinery efficiencies.

Peter Jackson, a director at the Cambridge Energy Research Assoc.,  
said Mr. Simmons was overstating decline rates of existing fields, was  
not taking into account the prospect for new discoveries, and played  
down the importance of unconventional resources such as Canada's oil  
sands.

Still, he said the industry faced “above ground” problems that would  
make it difficult to keep production growing fast enough to meet  
rising demand. About 90 per cent of existing conventional reserves are  
controlled by state-owned oil companies, many of which are not  
investing enough in capacity expansion, he said.

At the same time, the industry worldwide has seen construction costs  
explode, even as oil companies are forced to exploit smaller, more  
remote and more geologically complex reserves. The average cost of  
producing a barrel of oil has more than doubled in the past eight  
years, with most of that increase occurring in the past four, he said.

James Schlesinger, who was the United States' first energy secretary  
30 years ago during the oil shock of the late 1970s, warned of a new  
crisis looming.

That 1970s shock was the result of supply disruptions caused by the  
1973 Arab embargo and then the Iranian revolution. The current runup  
in prices reflects a more fundamental disconnect between constrained  
supplies and rising demand in the developing world, he said.

“At some point during the decade immediately ahead, we will hit a  
plateau, and this will have a tremendous shock both economically and  
politically,” Mr. Schlesinger said.