Tompkins County Relocalization Project

[Tompkins County Relocalization Project <tcrp-news AT lists.ibiblio.org>]

Here's the WSJ article I was talking about in yesterday's TCLocal
meeting.  I'm forwarding it to tcrp-news for the benefit of those
who may have missed its publication a few weeks ago.

The Journal has a lot of naysaying to swallow, so it's not
surprising that they have to begin by trying to justify their
former cheerful denials.  Peak oilers are understandably incensed
at the statement that they have "been proved wrong so often that
their theory has become debased":

   http://energybulletin.net/37438.html

As believers in the religion of the free market, the Journal has
no choice but to ascribe the coming crisis to failures of
investment.  But being right is really beside the point, which is
that major oil industry figures now recognize that we are headed
for a real petroleum availability crisis starting sometime between
2012 and 2020.  We can let the historians figure out the best way
to characterize the causes; from the standpoint of local
adaptation, it really doesn't make much difference.

Jon

==================================================================

The Wall Street Journal                 
November 19, 2007
PAGE ONE
Oil Officials See Limit Looming on Production
By RUSSELL GOLD and ANN DAVIS
November 19, 2007; Page A1

A growing number of oil-industry chieftains are endorsing an idea
long deemed fringe: The world is approaching a practical limit to
the number of barrels of crude oil that can be pumped every day.

Some predict that, despite the world's fast-growing thirst for
oil, producers could hit that ceiling as soon as 2012. This rough
limit -- which two senior industry officials recently pegged at
about 100 million barrels a day -- is well short of global demand
projections over the next few decades. Current production is about
85 million barrels a day.

The world certainly won't run out of oil any time soon. And plenty
of energy experts expect sky-high prices to hasten the development
of alternative fuels and improve energy efficiency. But evidence
is mounting that crude-oil production may plateau before those
innovations arrive on a large scale. That could set the stage for
a period marked by energy shortages, high prices and bare-knuckled
competition for fuel.

The current debate represents a significant twist on an older,
often-derided notion known as the peak-oil theory. Traditional
peak-oil theorists, many of whom are industry outsiders or retired
geologists, have argued that global oil production will soon peak
and enter an irreversible decline because nearly half the
available oil in the world has been pumped. They've been proved
wrong so often that their theory has become debased.

The new adherents -- who range from senior Western oil-company
executives to current and former officials of the major world
exporting countries -- don't believe the global oil tank is at the
half-empty point. But they share the belief that a global
production ceiling is coming for other reasons: restricted access
to oil fields, spiraling costs and increasingly complex oil-field
geology. This will create a global production plateau, not a peak,
they contend, with oil output remaining relatively constant rather
than rising or falling.

The emergence of a production ceiling would mark a monumental
shift in the energy world. Oil production has averaged a 2.3%
annual growth rate since 1965, according to statistics compiled by
British oil giant BP PLC. This expanding pool of oil, most of it
priced cheaply by today's standards, fueled the post-World War II
global economic expansion.

On Oct. 31, Christophe de Margerie, the chief executive of French
oil company Total SA, jolted attendees at a London conference by
openly labeling production forecasts of the International Energy
Agency, the sober-minded energy watchdog for industrialized
nations, as unrealistic. The IEA projects production will grow to
between 102.3 million and 120 million barrels a day by
2030. Mr. de Margerie said production by 2030 of even 100 million
barrels a day will be "difficult."

Speaking Clearly

This is "the view of those who like to speak clearly, honestly,
and [are] not just trying to please people," he bluntly
declared. The French executive said many existing oil fields are
being depleted at rates that will damage their geologic
structures, which will limit future output more than most people
allow. What's more, some nations endowed with large untapped pools
of oil are generating so much revenue from their current
production that they feel they don't need to further develop their
fields, thus putting another cap on output.

Earlier this month, James Mulva, the chief executive of
ConocoPhillips, echoed those conclusions in a speech at a Wall
Street conference: "I don't think we are going to see the supply
going over 100 million barrels a day.... Where is all that going
to come from?" He questioned whether the industry has enough
support services and people to execute projects to add that much
oil production.

Even some officials from member states of the Organization of
Petroleum Exporting Countries, which has long insisted on its
ability to supply the world with fuel for decades hence, are
breaking ranks and forecasting limits. The chairman of Libya
National Oil Corp. said at the same London conference the world
will have difficulty producing more than 100 million barrels a
day.

A former head of exploration and production at Saudi Arabia's
national oil company, Sadad Ibrahim Al Husseini, has also gone
public with doubts. He said in London last month that he didn't
believe there were enough engineers or equipment to ramp up
production fast enough to keep up with the thirsty global
economy. What's more, he said, new discoveries are tending to be
smaller and more complex to develop.  [Chart]

Many leaders of the industry still dismiss the idea that there is
reason to worry. "I am no subscriber to the theory that oil
supplies have already peaked," said BP's chief executive, Tony
Hayward, earlier this month in a speech in Houston.

Exxon Mobil Corp. Chief Executive Rex Tillerson has said that if
companies had better access to the world's oil reserves,
production would increase and prices would go down. "Sufficient
hydrocarbon resources exist to play their role in meeting this
growing global demand, if industry is allowed to access them," he
said in a speech this month. If access were granted, Exxon Mobil
believes the industry would be able to raise fuel production to
meet demand in 2030 of 116 million barrels a day.

The oil industry has long been beset by doom-and-gloom scenarios,
which so far haven't panned out. "The entire oil industry in the
late 1970s was convinced the price [of oil] would be $100 by 1990
and we would need huge oil shale mines" to exploit oil locked away
tightly in rock, says Michael C. Lynch, president of Strategic
Energy & Economic Research Inc. Of course, that didn't happen, as
discoveries ushered in new eras of low-priced oil in the mid-1980s
through the late 1990s.

U.S. government experts are optimistic -- to a point. The Energy
Information Administration, the data arm of the Energy Department,
forecasts world oil production will hit 118 million barrels a day
by 2030. But the agency warns that its prediction might not pan
out if resource-rich nations such as Venezuela and Iraq don't
invest enough in their operations.

"We know that the world is not running out of energy resources,
but nonetheless, above-ground risks like resource nationalism,
limited access and infrastructure constraints may make it feel
like peak oil just the same, by limiting production to something
far less than what is required," said Clay Sell, deputy secretary
of energy, in a speech in October. Resource nationalism refers to
tightening state control of oil fields to achieve political aims,
often by restricting outsiders' ability to develop the oil for
world markets.

'Undulating Plateau'

Two or three years ago, it was far more common for oil analysts
and officials to trumpet the potential of new technology to
harvest more oil. In a report last year, Cambridge Energy Research
Associates, a prominent adviser to energy companies, made the
comforting prediction that oil production could reach 110 million
barrels a day by 2015, and "more than meet any reasonable high
growth rate demand scenario we can envisage" up to that
date. Because of progress being made in extracting oil through new
methods, CERA said it found "no evidence" there would be a peak in
oil flows "any time soon." In a later report, CERA said world oil
production won't peak before 2030 and that even when it does,
production will resemble an "undulating plateau" for one or more
decades before declining gradually.

Oil companies have seen several years of bull-market prices, and
thus of trying to produce more. This has given their executives a
better sense of what is and isn't possible.

One limit: Many people think most of the world's giant fields
already have been discovered. By 1970, oil-industry explorers had
discovered 10 giants that could each produce more than 600,000
barrels a day, according to Matt Simmons, chairman of energy
investment banking firm Simmons & Co. International. Exploration
in the next 20 years, to 1990, yielded only two. Since 1990,
despite billions in new spending, the industry has found only one
field with the potential to top 500,000 barrels a day,
Kazakhstan's Kashagan field in the Caspian Sea. And Mr. Simmons
notes it is proving expensive and difficult to extract.

Big strikes are still possible. This month, Petróleo Brasileiro SA
announced a deep-water find off Brazil's Atlantic coast that
appears to be the largest discovery since Kashagan.

But some of the most promising geological formations are in
locations that are inhospitable, for reasons of geography or,
especially, politics and strife. Output from Iraq's rich fields is
unlikely to grow much until security improves and outside
investment returns. The future of Iranian and Nigerian production
is likewise clouded by geopolitical and local instability.

Labor and construction bottlenecks also are making it difficult to
develop proven fields. One of the largest obstacles is the booming
commodity markets themselves: The prices of raw materials used in
oil-field platforms and equipment has escalated. And during the
years of low or moderate oil prices in the 1980s and 1990s,
companies didn't develop enough geologists and other skilled
workers to supply today's needs. "Years of underinvestment in new
talent have led to a limited and aging pool of skilled workers,"
noted Andrew Gould, the CEO of oil-service giant Schlumberger
Ltd., last month.

High oil prices have also led to steep cost inflation for drilling
rigs and other equipment. Costs have soared so much that the
industry is falling behind in the investment needed to sate
expected future demand. To meet demand forecasts of 90 million
barrels of oil a day in 2010, the industry needed to have spent
$350 billion on drilling and producing in 2005, argues Larry
G. Chorn, chief economist of Platts, the energy and
commodities-information division of McGraw-Hill Cos. But the
International Energy Agency estimates that spending on oil-field
production in 2005 came to only about $225 billion, he says.

A failure to spend enough in the past few years "may have already
put the industry behind the spending curve," Mr. Chorn says. As a
result, he predicts "temporary shortages over several years,
causing debilitating price spikes."

Compounding the problem: Most of the world's biggest fields are
aging, and production at them is declining rapidly. So, just to
keep global production at current levels, the industry needs to
add new production of at least four million daily barrels, every
year. That need is roughly five times the daily production of
Alaska, with its big Prudhoe Bay field -- and it doesn't assume
any demand growth at all.

Rate of Decline

Mr. Simmons scoffs at estimates that production from proven fields
will decline only 4.5% a year. He thinks a more realistic rate of
decline is 8% to 10% a year, especially because modern technology
actually succeeds in depleting fields faster.

If he's right, the industry needs to add new daily production of
at least eight million barrels -- 10 times current Alaskan
production -- just to stay even.

Mr. Simmons thinks the world needs to shift its energy focus from
climate change to more immediate concerns. "Peak oil is likely
already a crisis that we don't know about. At the furthest out, it
will be a crisis in 2008 to 2012. Global warming, if real, will
not be a problem for 50 to 100 years," he says.

Oil executives who believe a production ceiling is coming are
making plans to stay relevant in a world where oil production is
constrained.

Mr. de Margerie said at Total's annual meeting this spring that
the company was "looking into" nuclear-industry investments and
had hired nuclear experts to help make strategic
decisions. ConocoPhillips recently said it was considering
building a commercial-scale plant to turn plentiful U.S. coal into
natural gas.

Soaring energy prices have breathed new life into projects
targeting "nonconventional" oil, such as that trapped in sand or
shale. But these sources can't be tapped nearly as quickly or
inexpensively as the big oil finds of the past.

Vivid Example

Canada's massive oil-sands deposits, which hold the largest oil
reserves after Saudi Arabia's, offer a vivid example. They contain
an estimated 180 billion barrels of oil. But after years of
intensive development and tens of billions of dollars of
investments, the sands are producing only a little more than 1.1
million barrels of crude a day. That's projected to reach three
million a day by 2015. The oil deposits are so heavy that
companies must either mine them or slowly steam them underground
to get the oil to flow out of the sand.

Randy Udall, co-founder of the U.S. chapter of the Association for
the Study of Peak Oil and Gas, has written that these
unconventional oil supplies are like having $100 million in the
bank, but "being forbidden to withdraw more than $100,000 per
year. You are rich, sort of."

As these uncertainties mount, there is growing hope that Saudi
Arabia, which has about 20% of the world's oil reserves, would
ride to the rescue if needed. Saudi Aramco, the national oil
company, has embarked on an ambitious plan to increase its daily
production by 30%, or three million barrels, early next decade,
and thus reclaim the title of top producer from Russia. But Mr. Al
Husseini, the former Saudi oil executive, now an independent
consultant, said others aren't doing as much, leaving the world
entirely dependent on Saudi Arabia to provide extra capacity.

"Everyone thinks that Saudi Arabia will pull us out of this
mess. Saudi Arabia is doing all it can," he says in an
interview. "But what it is doing, in the long run, won't be
enough."