Friday, November 25, 2005

Move past era of oil, experts say

The News & Observer

By Greg Gordon
Washington Bureau

November 25, 2005

Former CIA Director James Woolsey paints a dire scenario: A terrorist attack causes a months-long, 6 million-barrel reduction in Saudi Arabia's daily petroleum output, sending the price of oil skyrocketing past $100 a barrel.

Industry banker and author Matthew Simmons says the kingdom's oil fields are deteriorating anyway. And a recent New York Times story cited an intelligence report suggesting the Saudis lack the capacity to pump as much oil as they boast they can.

Even if nothing disrupts the projected flow of Middle East petroleum, Energy Department consultants warned earlier this year that "the world is fast approaching the inevitable peaking" of global oil production -- a problem "unlike any faced by modern industrial society."

They wrote that the United States and other nations are in a race with the clock to find alternative sources for oil, "the lifeblood of modern civilization," and avoid potential economic disaster.

Congress Notices

After years -- or even decades -- of sitting on the fringe of the world oil debate, Congress is starting to pay attention to the issue of what to do when production dwindles.

This month, a bipartisan group of eight U.S. senators proposed legislation to accelerate the nation's shift to new energy sources in the transportation sector, which accounts for two-thirds of America's oil consumption, guzzling 14 million barrels of oil each day.

Warning of a potential crisis, they proposed billions of dollars in tax incentives to spur development of vehicles powered by electric batteries, diesel, ethanol and exhaust-free hydrogen fuel cells. In the House, 16 co-sponsors want all U.S. gasoline to contain a 10 percent blend of renewable fuel, as only Minnesota requires now.

If peaking production or rising demand lead to shortfalls of oil before a shift to alternative sources occurs, the global effect could be huge, the Energy Department consultants wrote. They said U.S. costs from a prolonged oil shortage could reach $4 trillion.

Developed countries would face inflation, rising unemployment and recession, they wrote, while Third World nations "will likely be even worse off."

Hurdles seen

U.S. companies and government agencies already are exploring the energy alternatives proposed by the senators, but progress has come at less-than- breakneck speed.

Experts say that high startup costs, technological hurdles, tepid consumer demand for pricier, fuel-efficient vehicles and other obstacles likely will prevent such products from significantly reducing U.S. oil imports for a decade or more without government intervention.

Critics say the energy bill that President Bush signed into law last summer will only modestly reduce U.S. dependence on foreign oil. It offers tax credits ranging up to $3,000, beginning Jan. 1, for early buyers of hybrids or diesel-powered vehicles, but it does not toughen 25-year-old fuel efficiency standards for cars and trucks.

Woolsey said in an interview that the administration is no longer "just asleep on these issues" but that the government still isn't moving swiftly enough to bring new technologies to full-scale production.

Reserves are up

Not everyone agrees that oil production is nearing a peak. "I don't think the evidence is there," said Daniel Yergin, founder of Massachusetts-based Cambridge Energy Research Associates.

His team of geologists and petroleum engineers has done an oil field-by-oil field analysis and concluded that world oil production capacity will increase by nearly 20 percent between 2004 and 2010, and that since the 1990s discoveries of new oil reserves have exceeded production.

Yergin, who won a Pulitzer Prize for his 1991 book chronicling the history of the oil industry, said he supports the search for more fuel-efficient technologies. But since the 1990s, he argued, the world has "added more oil [reserves] than has been produced."

In addition, some of the fuel squeeze could be eased by oil and mining companies' breakthroughs in finding new techniques for extracting oil from Canadian tar sands and even ways to convert some of the nation's vast coal resources to petroleum.

Keeping pace

The energy consultants' report said new oil discoveries are distantly trailing new demand, and no "super giant" oil field has been found in more than 35 years. The Arctic National Wildlife Refuge, which the Senate recently voted to open for oil drilling, might qualify. It would produce no petroleum for a decade, then would pump 1 million barrels a day -- still less than 5 percent of current U.S. consumption.

Others say global demand is rising so quickly that new oil discoveries alone cannot keep pace. Sen. Mark Dayton, D-Minn., said that on a recent visit to Beijing, Chinese officials told him the number of cars and trucks there will surge from 24 million to 140 million by 2020.

The U.S. Energy Information Administration has projected the year 2037 as the most likely date for a global oil production peak, but the Energy Department consulting team led by Robert Hirsch said it found another EIA scenario for a peak in 2016 to be "much more credible."

Woolsey is among a group of neoconservatives who have voiced national security concerns over the United States' importation of 62 percent of its oil, given the instability in the oil-rich Middle East and other Third World, oil-producing nations.

"Whatever you think about peak oil," Woolsey said, "you need to be concerned about the possibility that in the very near term at any point, ... regime change, government policy change or terrorist attacks could put a major, and perhaps even a long-duration spike on oil prices. ... We need to move away from oil in either case."


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