Sent on 7/10/06 to Denver Post Letters ... they declined to print.

"Cliff oil"

As gas prices rise we hear more about "peak oil." That's when about half the oil on earth is gone. At that time world oil production is expected to peak and steadily decline. But the decline will feel steep, not steady, and the ride will seem like "cliff oil."

The Hubbert "peak oil" theory came from geophysicist Dr. M. King Hubbert. Fifty years ago he correctly forecasted 1970 as the peak of U.S. oil production and its steady decline thereafter.

Most experts estimate the same will happen to world oil production between 2005 and 2020; optimists say 2035. The Post Carbon Institute estimates that oil from conventional sources peaked in 2005. Tapping unconventional sources such as polar, deep water and heavy oil from shale will delay the peak to about 2010.

So how much oil will the world need? OPEC forecasts world oil demand in 2006 will average 84.6 million barrels/day (mb/d). The International Energy Agency forecasts that global demand will reach 121 mb/d in 2030.

Is that possible? The head of exploration for Total, Christophe de Margerie, says no, "... 120 mb/d will never be reached, never."

Now why would he say that?

The reason: the flow of oil depends, not on the amount of oil in the ground, but on the number of oil wells and how much each can produce. The flow of oil is like the outflow of water from a bucket. It depends primarily on the number of holes in the bucket and size of the holes, not on the amount of water in the bucket. Outflow can be increased by adding more holes. For oil that's drilling more wells.

The problem for oil according to de Margerie is that it's not easy to drill more wells. Communities the size of cities with accompanying infrastructure must be built to support those who drill them. That takes more time and effort than the actual drilling.

So there are several reasons supply will be limited: 

• The inability to quickly bring wells online to access the oil remaining.
• Less pressure in existing wells makes that oil more difficult to extract.
• Other sources, such as polar, deep water, and shale are more costly to extract. Oil from wells costs just a few dollars a barrel to produce, but oil from tar sands costs $20 or more a barrel to mine and it requires more energy.

Demand is also increasing. Because the U.S. consumes about 25 percent of all oil, our increasing demand is a big factor. And China's demand is rapidly increasing. It's now the world's second-biggest energy user. Its oil imports rose by 31 percent in 2003, 13 percent in 2004, and 10 percent in April 2006.

China needs that energy to support rapid economic growth, growth that's due in no small part to the offshoring of U.S. production to China. It's created a U.S. trade deficit with China that's grown from $100M in 2002 to $200M in 2005. It's not slowing; China's trade surplus in May hit a monthly high.

Note there's a connection between increased U.S. offshoring of production to China, China's increased demand for oil, and higher gas prices. When we buy "cheap" imports from China, we also pay for them at the pump.

Yes, corn and sugar cane can provide a replacement source of fuel. But don't count it. During five of the past six years, world grain consumption significantly exceeded what farmers produced. There's not much land remaining to convert to food production. And what's left is mostly poor quality and likely to become dust bowls if heavily used. So agricultural fuel sources will also be scarce.

As we experience "cliff oil," both fuel and food will be more expensive.

We can't drill our way out of the oil supply-demand crunch. So we'd better create crash programs to develop alternate energy sources and improve energy efficiency. Contacting your Representative and Senators to encourage this would be a good move about now.


Bob Powell, Ph.D., is owner of exponentialimprovement.com and a Magellan Center Senior Fellow.