Petroleum Experts Debate
Impending World Oil Shortage
Round Table Discussion on World Oil Supply
and the Consequences for America
Review by Steven Schafersman
October 10, 2002 On Thursday, October 3, the University of Texas of the Permian Basin in Odessa, Texas, hosted a round table discussion on the future of the world's petroleum supply and the possible impending global oil shortage and its consequences for the United States. The round table/town meeting was a project of the John Ben Shepperd Public Leadership Institute at UTPB. The discussion was moderated by Ms. Leslie Haines, Editor of the Oil and Gas Investor. The round table panelists consisted of four distinguished petroleum consultants who were extremely knowledgeable about the topic.
Two panelists, Henry Groppe and Kenneth Deffeyes, maintained that the peak of global oil production had already occurred or would occur within two years, and that the resulting economic effects of this downturn in production would have grave political consequences for most countries, but especially the United States, because our massive economy is so dependent on petroleum resources and--since we consume proportionately more petroleum than any other country in the world--the downturn would hurt our economy far more than any other country. Kenneth Deffeyes, professor emeritus at Princeton University and an experienced petroleum geologist, is known for his recent, popular book on the subject, Hubbert's Peak: The Impending World Oil Crisis, in which he predicts that world oil production will peak in 2004 and then implacably decline. In his book, Deffeyes describes the horrific consequences of imminent world oil depletion: economic calamity, global depression, plunging standard of living for every person on Earth, and ultimately world conflict and war. Only a curtailment of consumption will prevent this scenario from becoming a reality. Henry Groppe, founder and partner of a respected Houston petroleum consulting firm, agrees with the impending oil decline, concluding that world oil production reached an all-time peak as early as 2001, but certainly by 2003. While predicting the same decline as Deffeyes, Groppe differed by stating that the result will be "a very manageable crisis," because the decline will be slow. Both Deffeyes and Groppe accept the world oil depletion predictions of renown petroleum geologist M. King Hubbert, who with his famous curve accurately predicted the peak and decline of U.S. oil production in the early 1970s.
The other two panelists, Guy Caruso and Michael Economides, presented the contrary viewpoint, that the planet has sufficient petroleum energy reserves remaining for many decades for humanity to gradually transition to renewable, alternative, nuclear, and hydrogen fuels. They foresee no crisis or calamity, stressing that new exploration and production technologies and gradual replacement of crude oil by natural gas will allow petroleum supplies to continue to provide the world with sufficient energy as the planet transitions to other types of energy over the next century. Guy Caruso, head of the Federal Energy Information Administration, defended the United States Geological Survey's (USGS's) "World Energy Assessment 2000," which forecasts an optimistic future of global energy abundance. Michael Economides, professor at the University of Houston, an international petroleum consultant, and author of the popular book "The Color of Oil," disputed the reliability of the Hubbert's analysis with regard to world oil resources. claiming that the warnings of Deffeyes based on the Hubbert curve were "misinterpretations" of Hubbert's theories.
Henry Groppe began the debate by presenting several facts. "Oil," he said, "is a finite commodity that will gradually deplete." We have run out of $5 a barrel oil, $10 a barrel oil, and we are now running out of $20 a barrel oil. Future oil prices can only increase, ultimately driving poorer countries into economic distress and making life expensive for richer countries. U.S. oil production peaked in the early 1970s at about 10 million barrels of oil per day, and has been declining ever since. Increasingly aggressive exploration has been required in recent years to find new oil, but the search has been disappointing in the last 30 years since all major new discoveries have been under water (and thus very expensive to produce). Other countries oil production has peaked in the last two decades, and world oil production will peak sometime during 2001-2003, but the decline will be slow and manageable.
Kenneth Deffeyes presented a more alarmist scenario. He predicts that world oil will peak in 2004, and that while the decline may be slow and gradual, the economic result will not be manageable. Instead, oil prices will chaotically rise so much that economic disruption will result. Deffeyes maintains that oil cannot be replaced by other fuels and forms of energy fast enough to prevent the economic disruptions and consequent world political crisis. He called those individuals holding the opposing viewpoint "optimists, dreamers, people who think the world is flat." He specifically criticized the USGS's world energy assessment, claiming that the USGS "cooked the books." The oil price rise and increasing energy costs will come upon us so quickly that there will be too short a time to do research and development of new energy sources, so "we must go with what we have now." These include hybrid gasoline/electric engines (such cars can achieve 50-100 miles per gallon with current technology), nuclear energy, wind energy, and hydrogen from coal for fuel cells. These new energy forms are more expensive than oil, and the economic downturn from such increased energy costs will be economically and politically disruptive.
Guy Caruso asked rhetorically, "Is there an impending oil shortage?" He answered, "NO!" Using the USGS figures, he said that the U.S. government believes them and even thinks they are on the low side. Agreeing that energy resources have broad implications for world politics, economics, and global stability, he maintained that "technology and entrepreneurs" are there to find and exploit these resources and keep them available to us at moderate prices. Like many in the petroleum industry, Caruso sees tremendous potential for growth in oil reserves using new technologies. His office and the USGS has calculated that world oil demand will grow 20% a year and the demand can be met at $25 a barrel. Any shortage, he emphasized, will be manmade, not due to resource base depletion. Caruso made note of petroleum resources other than liquid crude oil: natural gas, gas liquids, oil sands, and heavy oil, all of which are produced today and are increasingly being brought on line to reduce our dependence on crude. He concluded that "the oil age will be with us for several more decades without problems."
Michael Economides supported the idea that oil is extremely abundant, and "technological advances will enable us to keep producing oil at current and even greater rates." He pointed out that with inflation, the oil we have now at $25 a barrel is the cheapest in history. Oil in the 1880s was $1000 a barrel in today's money, and the current price is half the price of oil earlier in the twentieth century in constant dollars. He emphasized a well-known fact: that predictions about oil shortages in the past have universally been wrong. Instead, Economides predicts that the world will not run out of oil for two centuries. He claims that there are tremendous undiscovered reserves in the Gulf of Mexico, the north slope of Alaska, and deeper waters offshore, not to mention many other places in the world, such as the Persian Gulf and the Caspian Sea. But Economides believes that even these undiscovered reserves will not play the major world in meeting our need for oil, for "natural gas will become the fuel of choice throughout the world within the next decade," and this will in turn lessen our dependence on crude oil. Economides calls the trend of moving from wood to coal to oil to methane and ultimately to hydrogen the "decarbonization of fuel." Hubbert's peak is a fact, but "it will not come into fruition," because the transition to natural gas in inevitable due to the implacable, universal trend of decarbonization. Hydrogen fuel cells are "around the corner" as an energy source, and the hydrogen will come from natural gas. Petroleum (oil plus methane) will increase from 61% to 67% as a fraction of our global energy use, and the addition will be natural gas. The planet's methane resources are enormous and, in many cases, just now being tapped. While there is no doubt that the U.S. economy is heavily dependent on oil, he concluded, the Middle Eastern oil supply is available and right now is vital to our country. But the dependence will decrease in time as Earth's tremendous natural gas resources are increasingly used.
The audience in the hall was now able to ask questions, turning the round table discussion into a town meeting. The questions were perceptive, eliciting further differing views from the speakers. Groppe thought that oil conservation would be a key, pointing out that U.S. and Europe peak petroleum consumption was several years ago, and that conservation (and the economy) was responsible for the decrease. He blamed the popularity of SUVs and big trucks for excess fuel consumption, saying that this was wasted energy. Economides immediately challenged Groppe, saying that "conservation has never been a factor in U.S. energy consumption," and that "we have not wasted energy in the U.S." This reply drew appreciative applause from the audience, largely composed of oilmen, petroleum geologists, and others involved in the petroleum industry. Caruso stated that the federal government, technology, and conservation all have roles to play in oil supply; for example, we must diversify our oil suppliers for security reasons, and we have to continue to utilize other fuels and energy sources in the mix.
Groppe thought it was meaningless to talk about oil supplies and reserves in isolation of price. Price is the key factor in petroleum availability. Economides stated that natural gas production has increased 50% in recent years, and this needs to be included in any discussion of energy resources. Groppe replied that the U.S. will continue to use oil-based fuels for transportation (the primary use of crude oil) for several decades, implying that natural gas is not a factor in this circumstance. Deffeyes stated that issues such as drilling in the Arctic National Wildlife Refuge (ANWR) are unimportant "compared to the real problem of global petroleum shortage," since any oil from ANWR would be "a drop in the bucket." He maintained that the larger picture must be addressed, and we should not focus our attention on sideline issues.
Caruso pointed out that the U.S. currently produces 50% of its own oil, and imports the remaining 50% almost completely from Canada, Mexico, and Venezuela, but any interruption in world oil supply affects the U.S. economy. The reason is that the price of oil is a world price, and a shortage or disruption in the Middle East, for example, would send prices higher and diminish the supply for everyone. Thus, even though the U.S. imports very little oil from the Middle East, Russia, and the Caspian Sea region, oil disruptions there significantly affect our economy now, and our imports from those regions will significantly increase in the future. We will be importing 60% of our oil within a decade and 70% in another.
Is the U.S. becoming more vulnerable because of increasing imports of foreign oil? Economides says "No!" The markets will work in the long run (oil sellers will want to sell their oil to buyers), but oil supply disruption (for political reasons) "in the short term will be devastating." Caruso said he "distinguishes petroleum dependence from vulnerability." Japan, for example, is dependent but not necessarily vulnerable on foreign oil. The U.S. is increasingly dependent on foreign oil but not vulnerable.
When asked by this writer to "explicitly explain" why he disagrees with the USGS world oil assessment, Deffeyes complained that the USGS used a method he finds faulty. It cut up the world's crust into blocks and used petroleum geological experts to estimate the oil in each block. He claimed that adding and averaging their estimates is invalid, because "they did not accept zero as a value for a block." Deffeyes added that the USGS estimates were "policy-driven," that is, the world oil reserve estimates were deliberately skewed upward to "convince other countries not to hold back their oil" in exports (i.e., their perceived power to affect world oil supplies is really an illusion, thus they should keep the oil flowing for the benefit of all). Deffeyes elaborated on his conspiracy theory, saying that "the purpose of the USGS estimates is to not let the Middle East know that they might want to withhold oil for economic reasons."
Further contradicting Economides' enthusiasm for natural gas becoming our country's most important energy source, Groppe pointed out that the U.S. consumption of natural gas has been above our domestic production for many years, and our national production of methane has been declining as with oil. Canada has quadrupled its natural gas exports to the U.S. in recent years to keep our consumption at its high level, and Canada cannot keep doing that for long. Groppe believes that nuclear energy for power will begin again soon by necessity; the first license for a new reactor in 30 years will be filed next year.
When asked about the proposed U.S. energy policy, Deffeyes claimed that our nation's policy is "not coherent and comprehensive--it is essentially no policy at all." Caruso said that the government is producing "coherent and comprehensive reports." Groppe said that the U.S. has had a national energy policy for 50 years: "making the Persian Gulf our lake;" possessing military influence in the area, keeping the governments there stable and safe, and keeping the Soviets out, all to protect the region's enormous oil supplies for our and other countries use. Deffeyes agreed, saying that the U.S. acted when Saddam Hussein tried to control the region, and the ultimate purpose of Osama bin Laden was to control Saudi Arabia and thus control the region. Iraq, he said, is the "best target in the world for modern exploration and production technologies," since that country has been isolated for so long from access by Western petroleum companies and their modern technology. Apparently not wanting anyone to think that the current effort against Iraq and Saddam Hussein was caused by our government's concern for its oil resources, Caruso stated that "if Iraq had no oil but had weapons of mass destruction, we would still be interested in opposing Iraq, but if Iraq had twice the oil and no weapons of mass destruction, we would not be interested."
Steven Schafersman of Bad Geology at infoATbadgeology.com. (Help stop spam: substitute @ for AT before mailing.) "Sapere Aude • Dare to Know!" Last updated: 2004/01/22