Peak Oil News: 05/01/2008 - 06/01/2008

Saturday, May 31, 2008

Peak Oil: An Idea Whose Time Is Up

IBDeditorials.com


Energy: Analysts have found that investors spooked by the peak oil theory — the belief that crude production has topped out and is in decline — are partly behind the soaring oil prices. Someone should set them straight.

Blame part of $135-a-barrel oil on the increased demand in China and India, where the populations and economies are growing rapidly.

But the impact of those nations on crude prices in recent months is suspect. Global oil consumption grew 2% in the first quarter of this year over the first quarter of 2007, while production increased 2.5% over the same period. On a daily basis, roughly 85 million barrels of oil are consumed across the world, almost exactly matching the amount produced each day.

Production over the next two quarters is projected to continue rising (3.3% and 4.1%, according to estimates from Citigroup), while demand is expected to grow at a slower 1.6% pace over the next six months.

These data don't indicate higher prices, so something else is at work. Some analysts believe that investors who have swallowed the peak oil theory are pricing oil higher because they fear the world is running out of crude and permanent shortages are nigh. They shouldn't believe it.

The peak oil theory was popularized by Shell Oil geophysicist M. King Hubbert. He predicted in a 1956 paper that U.S. oil production would peak by the early 1970s and then decline sharply. The peak oilers — many of whom quietly want the world to run out of oil — say he was right. But they're missing some key points.

Yes, domestic output has peaked. But it peaked at a level 13% above what Hubbert predicted. And the peak wasn't followed by a falling-off-the-table decline. Output rose after a temporary slide.

U.S. production is trending down again, but it's not because there's no oil. It's due to shortsighted policies that prevent the industry from drilling for the almost 100 billion barrels of crude known to be under Alaska's Arctic National Wildlife Refuge and beneath the oceans just off of America's coasts. It's because politics and political correctness block the development of Big Sky state oil shale fields, where as much as 2 trillion barrels of crude, by some estimates, sit idle.

It's possible that rather than falling for the peak oil theory, investors simply are considering the reality that Congress has done nothing to increase crude output, and that continuing on that foolish path will indeed bring shortages.

The U.S., though, is not the only nation that pumps oil. World output is expected to rise from 85 million barrels a day today to 110 million barrels by 2015, according to the International Energy Agency.

Cambridge Energy Research Associates argues that the remaining global oil resource base is 3.74 trillion barrels. That's more than triple the peak oil estimate of 1.2 trillion barrels. CERA also has noted that output will not fall as quickly as peak oil alarmists think. Many studies put the decline rate at 8% a year, but after studying 811 separate oil fields, CERA believes the rate to be about half that — 4.5%.

By the way, this estimate doesn't even consider undiscovered and untapped oil fields. Nor are unconventional sources, such as shale oil, part of the equation.

As if he had peered into the spring of 2008 and seen the run-up in oil prices, Peter M. Jackson, CERA's director of oil industry activity, warned in 2006 that listening to the wrong voices would have consequences.

"The 'peak oil' argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions and cloud the debate over the energy future," he said.

The "theory causes confusion and can lead to inappropriate actions and turn attention away from the real issues," Jackson continued. "Oil is too critical to the global economy to allow fear to replace careful analysis about the very real challenges with delivering liquid fuels to meet the needs of growing economies."

So far, all five previous predictions that we were running out of oil have been wrong.

But one day the crude supply will effectively dry up. When it does, it won't happen overnight.

It will happen slowly enough, though, for consumers to adapt (through voluntary lifestyle changes) and markets to respond (with improved fuel efficiency, technological advances in extracting crude and new energy sources). There's no reason for investors to act as if the world is running out of oil. It isn't.


Wednesday, May 28, 2008

Cheap oil is history. But why?

Telegraph



By Dan Roberts


100 years after oil was found in the Middle East, prices are at $135 a barrel. What’s driving the surge? Dan Roberts reports .

The smell of sulphur was, by all accounts, overwhelming. One hundred years ago this weekend, the British explorer George Reynolds made the first big discovery of oil in the Middle East.

Shortly before dawn on the morning of May 26 1908, it came gushing out of the sands of Persia in quantities that would transform not just the region’s fortunes but the entire world.

A century on, the global gushing noise is being replaced with something else. There’s plenty of the black stuff still down there, but it sounds more like someone slurping at a straw, poking around the bottom of a glass in among the ice cubes.

The company Mr Reynolds worked for is now called BP and its newest rig, Thunder Horse, has to drill through three miles of mud, rock and salt, topped by a mile of ocean, to get to the latest finds in the Gulf of Mexico. The days of easy oil are over.

You need go no further than the local petrol station to see the difference: suddenly, filling a family car costs £70. The price of crude has doubled in 11 months, rising 8 per cent just this week to $135 a barrel. Analysts predict it could reach $200 by next year.

The effects are everywhere. Soaring fuel bills for airlines threaten cheap travel and long-haul tourism. Politicians from Crewe to North Carolina are taking a drubbing from voters worried about the rising cost of living. Economists and stock market investors alike look to oil prices for their sense of direction: so far, it’s all one way.

The stampede in the oil market is making billions of dollars for a lucky few and leading others to wonder whether the world is finally starting to run dry. Until recently, the notion that international production was about to reach its limits – the so-called “peak oil” theory – was the preserve of cranks and crackpots.

The orthodoxy was that we had decades of growth left to come. Now peak oil conspiracy theories are passing into the mainstream. Even the prestigious International Energy Agency is preparing to slash its estimate of how much oil is left.

A gradual decline in global production might last for decades, but the laws of supply and demand move much faster: as the giant economies of China and India demand ever more energy, the pessimists claim only a dramatic change in our lifestyles will avoid further skyrocketing oil prices.

“Eighty-five million barrels of oil a day is all the world can produce, and the demand is 87 million,” says T Boone Pickens, a US hedge fund trader specialising in oil. “It’s just that simple.”

But the facts are not that simple. Just as the theory of peak oil is gaining ground in the trading rooms of London and New York, other conspiracy theorists are winning over politicians and commentators with a rival explanation for soaring prices.

They point to anomalies in the oil market, which mean there are actually surpluses building up. Iran has 25 million barrels of excess crude floating around in storage ships.

“There are simply no buyers because the market has more than enough oil,” says its Opec representative, Hussein Kazempour Ardebili. The oil cartel’s estimates are almost the opposite of Wall Street’s: 88.75 million barrels a day of supply and 86.8 million barrels a day of demand.

So why the record prices? The controversial theory is that the traders themselves are to blame. By speculating on ever higher prices, they are ensuring that they come about. Ordinarily, such arguments would be dismissed as economic illiteracy. Most economic studies maintain it is just not possible to influence the market in this way.

But the changing role of investors has attracted attention at the highest level. Last

week, the US Senate held hearings into whether excess speculation was to blame for high commodity prices. Billions of dollars of pension fund money and other institutional investment is indeed pouring into the commodity markets in a way it never used to.

Michael Masters, a hedge fund manager who is critical of his industry’s role, estimates that the amount of money invested in commodity index-tracking funds had risen from $13 billion in 2003 to $260 billion by this March.

“Individually, these participants are not acting with malicious intent; collectively, however, their impact reaches into the wallets of every consumer,” he warns. Critics call this “virtual hoarding” and point to the surplus of current supply as evidence that the futures market has become separated from the fundamentals of supply and demand.

Whether this is indeed the case depends, sadly, on who you ask. “Traders can rarely see beyond their own trade, and they usually come up with whatever explanation flatters their own position,” says one experienced market watcher in London.

“There is an awful lot of self-interest when it comes to this issue.” Opec has blamed speculators for high oil prices almost since its inception.

Privately, many “speculators” are unrepentant – often almost gung-ho about the wild markets. “I can tell you that I have made a fortune in the past two months,” says Charles, an oil futures trader. “This is the free market and I’m exploiting the free market. Long live the free market.”

Others caution that the real money is being made by oil producers – mainly the state-owned companies in places like Saudi Arabia – rather than middlemen. “Some traders are making money, but plenty more are losing it too,” adds the London market veteran.

“The swings are so huge that you only have to get your European gasoline position slightly wrong, for example, and you can kill the fund with hundreds of thousands of dollars of losses.”

Some of the biggest money has been made by the investment banks, who act for hedge fund investors and are allowed special exemptions from rules governing the size of speculative commodity investments. It is no surprise to find that some of the biggest supporters of rising oil prices work in the research departments of such banks.

Arjun Murti of Goldman Sachs is typical of this more sanguine breed, but at least he has form for getting it right. Last year he shot to fame by correctly predicting the “super spike” that would take oil prices to $100. Now he sees a real chance of $200 in six months to two years.

“Opec’s spare capacity remains at very low levels,” he says. “Saudi Arabia is starting to acknowledge that production is not going to grow infinitely into the future.”

Mr Murti also warns against looking for scapegoats. “The energy crisis will not be solved by punishing the big, bad speculator,” he says.

“The fact that tight oil [markets] are attracting large amounts of capital is a good thing. Higher oil prices signal to oil companies the need for greater investment and signal to consumers that they need to demand less. This is the point of capitalism.”

Don’t shoot the messenger, in other words.

If ever the oil realists needed a sign of how the world’s balance of power has shifted, it came last weekend when President George Bush returned empty-handed from a mission to Saudi Arabia. He had hoped to persuade this key Opec producer to turn up the taps and help the struggling US economy recover from the credit crisis. He got a rather derisory promise of 300,000 extra barrels a day, which experts claim was largely being pumped already.

“The Saudis knew what they were doing,” says one London oil executive. “An extra 300,000 barrels a day is neither here nor there, but if they added a million a day the oil price would react instantaneously: you could see prices back at $50 a barrel within a week or two. Why would they want to do that?”

Among the major Western oil companies, the view is equally simplistic: the problem is supply, not demand. Twenty-five years of underinvestment means the oil companies in countries like Iran and Saudi Arabia are not capable of fully exploiting their reserves.

The majors’ big new finds in the deep-water Gulf of Mexico, off the coasts of Africa and Brazil, and in Russian Arctic cannot compensate for slow production growth in the Middle East. Of course, when you translate this argument to compensate for special interest, you get a plea to be allowed back into countries like Iran, which threw out the Westerners all those years ago.

So if everyone is “talking their book” – that is, arguing the case their commercial interest dictates – who is really to blame for higher prices? Perhaps the most sensible conclusion is that many factors are at play: maturing oil fields; rising demand from India and China; a wall of speculative money; Opec’s cartel; underinvestment in new wells; and a falling US dollar exchange rate.

An equally sensible conclusion is to forget why and how, and focus on the implications of dearer oil. Given how little Gordon Brown, for example, can do about the price of oil, he might be better to focus on cuts in fuel duty. Or perhaps we should join Goldman Sachs in celebrating the effective functioning of market price signals: the market is telling us to consume less oil, so let’s start at home.

One of the biggest grounds for optimism, especially for those worried about carbon dioxide emissions, is that costly oil is good for the environment. The US is already changing its ways. The oil community was shocked to see that gasoline consumption fell this winter in response to higher prices. As the credit crunch bites, it seems Americans are prepared to wean themselves away from gas-guzzlers in favour of smaller vehicles.

The other good news for Britain is that oil is something we are good at. It’s not simply BP and Shell: the stock market is teeming with new oil and gas exploration companies that sell their expertise around the world.

Britain’s North Sea is also seeing its life extended by high prices, as more marginal fields become profitable again. And the UK economy is less energy-dependent than many, thanks to its bias in favour of services rather than manufacturing.

None of this changes the fact that soaring oil prices threaten to change our way of life as fundamentally as the discovery of all that cheap energy did a century ago. Almost ever since, the world has been shrinking as falling transport costs bring us steadily closer together.

In future, air travel may once again become a luxury. If we don’t find other ways to live our lives, we may simply be priced out of the market for oil by the determination of new global consumers to use what’s left.

One of the most respected historians of the oil age, Dan Yergin of Cambridge Energy Research, predicts an imminent “breaking point” when changes in behaviour and use of alternative energy sources start to drive down the oil price again. Put simply: “Very high oil prices will change the world.”


T. Boone Pickens' prediction: Oil production is reaching its peak

Dallas Morning News


By Elizabeth Souder


When T. Boone Pickens talks, oil traders listen.

The legendary oilman, who runs a multibillion-dollar commodities hedge fund in Dallas, appears frequently on CNBC to predict oil prices. He's often correct.

So nearly every time he makes a new prediction, the market moves that very day in the direction he forecasts.

"I think you're going to see $150 before the end of the year," Mr. Pickens told CNBC viewers Tuesday.

Sure enough, oil futures ended the day 1.6 percent higher at $129.07 a barrel, another record.

Mr. Pickens is one of several Texans who are pushing the Peak Oil theory of oil scarcity into the mainstream. He believes humans will soon use up half the oil they can extract, and oil production rates will drop, never to recover.

The controversial theory gives oil investors reason to bid prices to record levels and has prompted some local officials to create contingency plans.

Oil company executives try to assure investors and consumers that there will be plenty of oil for many decades to come, so there's no reason for oil prices to have doubled during the last year. Oil traders don't seem to be listening.

The peakers

M. King Hubbert, a Shell geophysicist from San Saba, Texas, came up with the Peak Oil theory in the 1950s. He studied the way an oil field's production declines as the field matures, until it's barely a trickle. He correctly predicted that U.S. production rates would peak around 1970.

But current Peak Oil theorists disagree on when global production will peak. Some say it's already happened; others give it another decade.

Part of the problem is that it's impossible to find accurate information on exactly how much oil lies underground. Some countries, such as Saudi Arabia, keep their reserve data a state secret.

Matthew Simmons tried to break through the Saudi silence. Mr. Simmons, who owns an investment bank and an oil field services company in Houston, pored over hundreds of technical reports about Saudi fields.

He concluded that Saudi production will soon wane, and the country will no longer be able to turn on the taps anytime humans face an oil shortage.

"Unless I'm totally screwed up in my analysis, we're sitting on the world's biggest delusion ever," Mr. Simmons said..

His best-selling book, Twilight in the Desert, pushed the Peak Oil debate beyond oil traders and engineers, to lawmakers and regular people.

The establishment

The chief executive of Saudi Aramco joins his oil industry peers in trying to persuade people that oil companies will continue to produce the fuel people need for many, many years.

Abdallah Jum'ah, chief executive of Saudi Arabia's national oil company, estimates that humans have only used about a third to one-sixth of the Earth's oil that we know how to produce.

He told the Cambridge Research Energy Associates annual convention in February that production from the world's largest oilfield, the Ghawar field in Saudi Arabia, has been steady for the last 10 years.

"All of this talk of Ghawar declining and so on, we really don't give a lot of attention to it," he said.

The followers

State and local politicians in Minnesota, Connecticut and Oregon have begun to fret about the consequences of declining production and have commissioned reports on the issue.

The Minnesota Legislature passed a resolution Monday calling on the governor to create a plan to meet the challenges of Peak Oil.

"Energy is the ultimate currency," said state Rep. Bill Hilty, who introduced the legislation and is a member of the Association for the Study of Peak Oil and Gas.

"So when you get to the point that you have a decline in the availability of cheap and available energy sources, you can't buy your way out of it," he said.


Thursday, May 22, 2008

Sweden plans to be world's first oil-free economy

The Guardian


By John Vidal


Sweden is to take the biggest energy step of any advanced western economy by trying to wean itself off oil completely within 15 years - without building a new generation of nuclear power stations.

The attempt by the country of 9 million people to become the world's first practically oil-free economy is being planned by a committee of industrialists, academics, farmers, car makers, civil servants and others, who will report to parliament in several months.

The intention, the Swedish government said yesterday, is to replace all fossil fuels with renewables before climate change destroys economies and growing oil scarcity leads to huge new price rises.

"Our dependency on oil should be broken by 2020," said Mona Sahlin, minister of sustainable development. "There shall always be better alternatives to oil, which means no house should need oil for heating, and no driver should need to turn solely to gasoline."

According to the energy committee of the Royal Swedish Academy of Sciences, there is growing concern that global oil supplies are peaking and will shortly dwindle, and that a global economic recession could result from high oil prices.

Ms Sahlin has described oil dependency as one of the greatest problems facing the world. "A Sweden free of fossil fuels would give us enormous advantages, not least by reducing the impact from fluctuations in oil prices," she said. "The price of oil has tripled since 1996."

A government official said: "We want to be both mentally and technically prepared for a world without oil. The plan is a response to global climate change, rising petroleum prices and warnings by some experts that the world may soon be running out of oil."

Sweden, which was badly hit by the oil price rises in the 1970s, now gets almost all its electricity from nuclear and hydroelectric power, and relies on fossil fuels mainly for transport. Almost all its heating has been converted in the past decade to schemes which distribute steam or hot water generated by geothermal energy or waste heat. A 1980 referendum decided that nuclear power should be phased out, but this has still not been finalised.

The decision to abandon oil puts Sweden at the top of the world green league table. Iceland hopes by 2050 to power all its cars and boats with hydrogen made from electricity drawn from renewable resources, and Brazil intends to power 80% of its transport fleet with ethanol derived mainly from sugar cane within five years.

Last week George Bush surprised analysts by saying that the US was addicted to oil and should greatly reduce imports from the Middle East. The US now plans a large increase in nuclear power.

The British government, which is committed to generating 10% of its electricity from renewable sources by 2012, last month launched an energy review which has a specific remit to consider a large increase in nuclear power. But a report by accountants Ernst & Young yesterday said that the UK was falling behind in its attempt to meet its renewables target.

"The UK has Europe's best wind, wave and tidal resources yet it continues to miss out on its economic potential," said Jonathan Johns, head of renewable energy at Ernst & Young.

Energy ministry officials in Sweden said they expected the oil committee to recommend further development of biofuels derived from its massive forests, and by expanding other renewable energies such as wind and wave power.

Sweden has a head start over most countries. In 2003, 26% of all the energy consumed came from renewable sources - the EU average is 6%. Only 32% of the energy came from oil - down from 77% in 1970.

The Swedish government is working with carmakers Saab and Volvo to develop cars and lorries that burn ethanol and other biofuels. Last year the Swedish energy agency said it planned to get the public sector to move out of oil. Its health and library services are being given grants to convert from oil use and homeowners are being encouraged with green taxes. The paper and pulp industries use bark to produce energy, and sawmills burn wood chips and sawdust to generate power.


Wednesday, May 21, 2008

World Made By Hand - A new novel about post peak oil America

Available at Amazon.com



From Publishers Weekly
James Howard Kunstler's name is mostly associated with nonfiction works like The Long Emergency, a bleak prediction of what will happen when oil production no longer meets demand, and the antisuburbia polemic The Geography of Nowhere. In this novel, his 10th, he visits a future posited on his signature idea: when the oil wells start to run dry, the world economy will collapse and society as we know it will cease. Robert Earle has lost his job (he was a software executive) and family in the chaos following the breakdown. Elected mayor of Union Grove, N.Y., in the wake of a town crisis, Earle must rebuild civil society out of squabbling factions, including a cultish community of newcomers, an established group of Congregationalists and a plantation kept by the wealthy Stephen Bullock. Re-establishing basic infrastructure is a big enough challenge, but major tension comes from a crew of neighboring rednecks led by warlord Wayne Karp. Kunstler is most engaged when discussing the fate of the status quo and in divulging the particulars of daily life. Kunstler's world is convincing if didactic: Union Grove exists solely to illustrate Kunstler's doomsday vision. Readers willing to go for the ride will see a frightening and bleak future. (Mar.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved.



Have We Really Hit Peak Oil?

AlterNet


By Richard Heinberg

Last week, Senate Democrats introduced legislation that would halt a U.S. arms sale to Saudi Arabia worth $1.4 billion. The implication is clear: no more war toys for the Saudis unless they agree to up their oil output.

The same day, the House approved a Senate plan to suspend oil deliveries to the Strategic Petroleum Reserve in hopes of diverting that oil to the market, thus lowering the pump price a tiny amount. A week earlier, a handful of Senators proposed a bill threatening a trade dispute with members of OPEC if the organization doesn't stop "its anti-competitive practices and illegal export quotas on oil."

It's understandable that our elected leaders would want to do something about the meteoric rise of gasoline, diesel, and heating oil prices that are now bankrupting independent truckers and forcing many folks in colder states to choose between being able to stay warm and being able to drive to work. Yet efforts like the ones just mentioned are based on a profound misperception of why oil prices are rising. The real problem is summed up in the phrase "Peak Oil."

Petroleum is a finite substance and we have reached the inevitable point at which it simply isn't possible to increase the rate at which we extract it from the ground. Most oil producing countries, including the US, have already seen their glory days and are now watching output from their wells gradually dwindle. Only a few nations are early in the production cycle and able to ramp up the rate of flow. Here is a concise definition of Peak Oil from my colleague Chris Skrebowsi, the editor of Petroleum Review in London. He says: "Global oil production falls when loss of output from countries in decline exceeds gains in output from those that are expanding."

Well, how are we doing? Who's winning, the decliners or expanders?

According to last year's scorecard, the decliners won. The same happened in 2006. And that's with oil prices at record highs, presumably offering every incentive for nations that can produce more oil to do so. Does this mean we are at the all-time peak of global oil flow rates now? Not necessarily. There are large new production projects coming on line this year and next, including one in Saudi Arabia that will add several hundred thousand barrels a day to that nation's productive capacity.

However, on the other side of the balance there is some very bad news. Russia, the world's leading oil producing nation and the country that has been responsible for the lion's share of the world's production growth over the past decade, has gone into decline. Optimistic analysts hope Russia will be able to keep production more or less flat for a few years, but that may not be possible. The past few months have seen reductions in output. Other important exporting nations like Nigeria and Mexico are also in trouble.

The timing of the global peak may still be unclear. But surely we can't afford, as a matter of national policy, to assume that it will be decades in the future -- given that all of the symptoms are staring us in the face now. Some economists say that current high oil prices are largely due to the falling value of the dollar, or to speculation. Simple arithmetic tells us that dollar depreciation has added only ten or fifteen percent to oil's cost over the past two to three years.

As for speculation, one has to ask why investors are choosing to park their money in oil contracts. It must be because they see the fundamentals supporting rising prices. In a situation where demand is headed higher but supply isn't, speculation is inevitable. So speculation is a symptom; it isn't the cause of the problem. Given all this, how much sense does it make to spend our time and effort blaming OPEC for not producing more, or to neglect saving some petroleum for the inevitable point in the future when our problem isn't just high oil prices, but actual shortages of fuel for emergency vehicles and food delivery trucks?

If I were a Saudi or a Kuwaiti, I would be advising my government not to pump more oil. After all, these countries earn nearly all of their income from selling the stuff; once the oil's gone, what can they do for an encore? No, it makes more sense for them to husband the resource, sell it for higher prices, and invest in renewable energy sources at home in preparation for the day when nature's patrimony is gone. In fact, however, in recent years most OPEC countries have been pumping flat out; only the Saudis claim to have any spare production capacity to speak of.

But isn't it a good idea for some country somewhere to keep some capacity in reserve in case of a real emergency -- a major pipeline outage, another hurricane in the Gulf of Mexico, or a revolution in one of the other main producing countries? Should efforts at responsible resource management make these people our enemies?

The blame game makes for good sound bites on the floor of Congress. It plays well with folks back home who are struggling to find the money to fill up their SUVs but can't find Saudi Arabia on a map. All they have been taught to know is that Arabs have lots of oil and they are bad people. But think where this might lead: suppose we get tough with the Saudis and end up destabilizing the kingdom so that forces unfriendly to us take over. Then we will feel more or less forced to invade in order to maintain access to our national drug of choice. Where would it end? Does any of this help?

Rather than looking for villains, we should be exploring how we can adapt to having less oil next year, and even less the year after that. Rebuilding our oil-dependent transport, agricultural, and manufacturing infrastructure is going to be a big job, and it's going to take time. So the sooner we start, the better. The real problem is that we use too much oil. It's that simple and that difficult. If we truly want to reduce our vulnerability to high prices, the best way to do so is to reduce consumption. One way or another, we will adapt.

We will drive less, we will fly less, and we will grow our food more locally with fewer inputs. But these changes will go far more smoothly if we plan for them, rather than being forced into them at the nozzle of an empty gas pump. There is a cliché in action films: "We can do this the hard way, or we can do it the easy way." Blaming OPEC while doing nothing to rein in our domestic demand for petroleum only ensures that we will be adapting to Peak Oil the hard way.

Richard Heinberg is a Senior Fellow of Post Carbon Institute and the author of Peak Everything, The Oil Depletion Protocol, and The Party's Over. He writes a regular column for The Ecologist magazine and is widely regarded as one of the world's foremost Peak Oil educators.


Tuesday, May 20, 2008

Running on empty? Fears over oil supply move into the mainstream

FT.com


By Carola Hoyos

On a rainy day last month, four drummers, three guitarists, a bagpiper, two didgeridoo players and 186 others assembled in the rural English town of Cirencester to discuss turning their neighbourhoods into low-impact communities built around farming, arts and crafts and herbal medicine.

After communal meditation and a few speeches, those present gathered in small groups to discuss everything from transport without oil to engaging local politicians in the “Transition Towns” movement’s stated aim: reducing their carbon footprint in response to concerns over diminishing hydrocarbon reserves as well as global warming. The mood in the group discussing energy was sombre. One former civil engineer predicted the demise of the lightbulb within a decade and derided the idea that market forces and human ingenuity could save the planet, laughing it off as “the magic wand” theory.

For years, such meetings have been dismissed as eccentric. Most of the world’s oil executives, government ministers, analysts and consultants reject the “peak oil” theory – the notion based on the 1950s work of Marion King Hubbert, a Shell geologist, that crude production will soon enter terminal decline. They say it understates remaining reserves, plays down the contribution of technological advances and ignores the role of market forces in shaping future supply.

But with the oil price at a record $126 a barrel, more than 1,000 per cent higher than a decade ago, fears of the end of the hydrocarbon age have seeped into the mainstream. Many in the industry itself now accept that supply constraints are shaping the price as much as rampant demand. Calls for greater investment to ease these constraints formed the crux of many of the discussions at last month’s meeting in Rome between energy ministers of the world’s main oil producers and consumers. A few weeks later, analysts at Goldman Sachs and elsewhere, as well as ministers of the Opec oil cartel, predicted that prices could reach $200 within two years.

So are the peak oilists right? A series of recent events certainly appears to lend credence to those who argue that the world’s ageing oilfields are being sucked dry amid China’s and India’s determination to lift themselves out of poverty and the west’s reluctance to give up the luxuries of modern oil-dependent life.

The fact that Russia’s oil production declined almost half a percentage point in April, the first drop in a decade, was shocking enough news from the world’s second biggest oil producer, whose output was growing at a rate of 12 per cent just five years ago. But Russian oil executives have gone a step further: Leonid Fedun, vice-president of Lukoil, told the Financial Times the country’s production may have already reached its peak.

Just days later Saudi Arabia, the world’s biggest oil producer and by far the largest exporter, confirmed it had put on hold plans to increase the kingdom’s production capacity. Ali Naimi, Saudi energy minister, said the demand forecasts he was reading did not warrant an expansion past the 12.5m b/d capacity Saudi Arabia’s fields will reach next year, following a laborious investment of more than $20bn (£10.3bn, €12.9bn). King Abdullah, the country’s ruler, put it more bluntly: “I keep no secret from you that, when there were some new finds, I told them, ‘No, leave it in the ground, with grace from God, our children need it’.’’

Most other forecasts show the world will need Saudi Arabia’s oil. Thus the kingdom’s reluctance to invest further in its fields has led some to ask whether Saudi Arabia can boost production or whether, after 75 years, the world’s biggest oil deposit has been cashed.

Friday’s announcement by Mr Naimi that Saudi Arabia would pump slightly more oil did little to ease prices because it failed to reduce concerns over supply: when the kingdom produces more oil, it eats into its cushion of spare supply. This means such measures sometimes backfire, driving prices higher – the opposite of what US President George W. Bush, who requested the increased output, had in mind.

One problem is that nobody really knows what is going on inside Saudi Arabia’s oil industry. Riyadh is so guarded that analysts from Sanford Bernstein, the financial services company, took to spying on its activity via satellite. They spent nine months monitoring the country’s drilling activities and measuring whether Ghawar, the world’s biggest oil­field, had subsided. Their conclusion: Saudi Arabia is having to work harder than the country’s engineers and geologists expected in 2004 to squeeze more out of the northern part of the ageing Ghawar field.

Matthew Simmons, an energy investment banker, has a bleaker view of Ghawar’s health. He took the news that Saudi Arabia was not planning to expand to 15m b/d as further evidence that the kingdom was struggling to ward off a collapse of its oilfields.

With his book Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, published in 2005, Mr Simmons, more than any other individual, laid the seeds of doubt over Saudi Arabia’s future reliability. Poring over 200 technical papers written by engineers over 20 years, some stored electronically and others gathering dust in the filing cabinets of the Society of Petroleum Engineers’ offices on the outskirts of Dallas, Texas, he uncovered evidence the kingdom’s fields were far more complicated to tap and declining more quickly than the secretive nation was willing to reveal.

Less well known, but equally damning, is his study of the rest of the world’s oilfields. Mr Simmons launched his project in 2001 after none of the analysts brought in to help the US Central Intelligence Agency map the world’s remaining big sources of oil came up with answers that satisfied him.

He found that the world depends on just a few giant, old, declining oilfields and that almost nothing to match them has been discovered since the 1970s. One in every five barrels of oil consumed each day is pumped from a field that is more than 40 years old. Not a single field discovered in the past 30 years has ever been able to produce more than 1m b/d and the number and size of fields discovered since then have been shrinking dramatically.

Output declines as an oilfield ages – sometimes dramatically. One example is Mexico’s Cantarell field. Discovered by a fisherman in 1976, Cantarell at its peak produced more than 2m b/d. Today, the field pumps half that volume and is in relentless decline, losing 24 per cent of its production each year.

The same trend – though at a slower pace – is plaguing most fields around the world, possibly including the four biggest: Ghawar, Cantarell, Kuwait’s Burgan and China’s Daqing. This means running to stand still: each year as much as two-thirds of new oil supply capacity goes towards covering for the slowdown at ageing fields.

Mr Simmons’ work is potent fodder for peak oilists, who espouse their gloomy views of the future on websites ranging from those with an academic air to more alarmist ones that come complete with advertisements for freeze-dried food and survival guides.

Hubbert in 1956 correctly predicted that US production would peak between 1965 and 1970. His later forecasts proved less reliable, as did prophecies by his followers. The Hubbert model maintains that the production rate of a finite resource follows a largely symmetrical bell-shaped curve, meaning that post-peak life could turn quickly to economic turmoil followed by a horse-and-cart existence.

Mr Simmons knows his peak oil views have moved him towards the fringes of a business in which he used to occupy a far more central position. But he is not alone. T. Boone Pickens and Richard Rainwater, the billionaire US investors whose net worth is estimated at more than $3bn each, have profited from their view of peak oil, through their hedge funds of mainly oil and gas holdings. Last Thursday Mr Pickens placed a $2bn order for the first 667 of 2,500 wind turbines that he plans to erect on the Texas Panhandle as he goes about building the world’s biggest wind farm.

Fears over supply increasingly extend to the corner offices of international oil companies. James Mulva, chief executive of ConocoPhillips of the US, and Christophe de Margerie, his counterpart at Total of France, both recently said they did not think world oil production would ever surpass 100m b/d.

That is the amount of oil the International Energy Agency, the consuming nations’ watchdog, estimates the world will need in seven years’ time. By 2030, it will need 16m b/d more.

Mr Mulva and Mr de Margerie would take deep offence at being called peak oilists. But they, together with a rapidly growing number of industry executives and ministers, believe the world is running out of “easy oil” and that political barriers – such as Nigeria’s crippling unrest, the nationalisation that has stunted Russia’s energy industry and the international tensions that have for two decades stymied Iraq’s energy potential – are keeping companies from being able to exploit the 2,400bn-4,400bn barrels that remain.

Instead of preparing for Armageddon, they are using technologies such as horizontal drilling to squeeze more oil out of their old fields and looking for reserves in harsher terrains. But even they advocate that consumers, who rely on oil for everything from light to lipstick, should be less wasteful.

Industry executives admit that fields in the developed world, such as those in the North Sea and Alaska, are about to peak. (Sanford Bernstein believes production outside Opec will peak this year.) But they argue that unconventional fields, such as those in Alberta and in Venezuela’s Orinoco belt, hold more barrels of oil than Saudi Arabia, while the Arctic’s riches could be immense as well.

Natural gas, coal, corn, sugar cane, algae and turkey innards are promising alternative sources that could fuel China’s new love affair with the car, they say. Meanwhile the biggest oilfield, as Joseph Stanislaw, adviser to Deloitte Consulting, likes to point out, lies beneath Detroit. In other words, millions of barrels a day of oil could be saved if Americans traded in their gas-guzzlers for more efficient vehicles.

All of this means global production will follow an “undulating plateau for one or more decades before declining slowly”, says Peter Jackson of Cambridge Energy Research Associates, an industry consulting firm. After studying its oil production and resources database, the group concluded that it saw no decline in the world’s ability to produce oil before 2030, making Cera’s one of the most sanguine forecasts.

But the ride could yet prove a bumpy one, even Cera admits. Saudi Arabia’s spare capacity is at its lowest level in a generation, having been eaten into by China and other fuel-hungry customers. It now stands at 2m-3m b/d, too little to cover a big interruption in supplies from elsewhere. This has already added a sizeable premium to international oil prices, though no one has a grasp of exactly how much.

Meanwhile, the long-term alternatives have serious downsides. The Alberta project is a big, dirty mining operation, both energy- and water-intensive. Hugo Chávez, Venezuela’s populist president, has made it risky for international oil companies to pour billions of dollars into the Orinoco belt. The technology to tap the Arctic’s big reserves and bring them back ashore has not been invented. Regarding power of the solar, wind and turkey-gut varieties, even the most optimistic forecasts say these will remain a small fraction of the overall energy mix.

In fact, even if all the policies to increase renewable fuels and to use oil more efficiently were to be enacted immediately, the world would still need Opec’s daily production to increase by 11.5m barrels by 2030, the bulk of which would have to come from Saudi Arabia, the IEA says.

That is a tall order. It is 50-plus per cent more than the amount by which Opec managed to increase output between 1980 and 2006. This time, the oil business is faced with a shortage of skilled labour (the industry’s average age is just shy of 50) and a squeeze in the supply of steel and other critical components.

So what if politics, an ageing workforce and a dearth of equipment get in the way and Saudi Arabia cannot – or will not – come to the rescue? Will the peak oilists turn out to be right, for the wrong reasons?

The answer depends on the market’s ability to adjust. For optimists, the worst that could happen is high oil prices eventually damp demand while giving the entrepreneurially inclined time to think of ingenious ways to produce and conserve energy.

Growth in demand is in fact already slowing, especially in the US and other developed countries. Neil McMahon, an analyst at Sanford Bernstein, suggests the downturn in developed countries may prove large enough to allow hungrier nations, such as those within Opec and China, to continue to demand increasing volumes of oil. “The question is: Have these [developed] nations been squeezed enough yet, or will prices have to go higher?” he asks in a recent report. Though he leaves open the possibility that prices will continue to rise for a while, he argues: “Based on 3.5 per cent [growth in] global GDP, overall oil demand growth will be close to zero.”

Guy Caruso, head of the Energy Information Administration, the statistical and forecasting arm of the US Department of Energy, also points to the power of the market to drive changes in government policy and the behaviour of consumers and oil companies. “As you know, we are not believers in peak oil. We believe the above-ground risk is the issue,” he says.

The EIA predicts that US imports of oil and petroleum products will decrease slightly in the next 22 years. This means the import dependence of the world’s biggest oil consumer is forecast to drop from 60 per cent to 50 per cent by 2015 before climbing again slightly to 54 per cent by 2030. The reasons for the drop include improved car efficiency, slower demand, higher use of biofuels and a 1m b/d increase in oil production from the US’s Gulf of Mexico by 2012. “One of the things M. King Hubbert couldn’t have known is about the technology to drill in 12,000 feet of water and to drill horizontally,” Mr Caruso says.

A pessimist’s version of events would include a more serious and widespread downturn, as developing countries buckle under the burden of subsidising their citizens’ swelling fuel and food bills. At the extreme end are the views of Jeremy Leggett, a geologist turned entrepreneur and author of Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis. In his worst-case scenario parable, he writes: “The price of houses collapsed. Stock markets crashed ... Companies went bankrupt ... Workers fell into unemployment by the hundreds of thousands and then millions. Once affluent cities with street cafés now had queues at soup kitchens and armies of beggars on the streets.”

Industry executives dismiss this as doom-mongering so corrosive that it has the power to distort policy and investment decisions. But such visions also have the power to prompt people to use energy more efficiently. The bagpipers and didgeridoo players of Transition Towns are indeed already a part, if only a small one, of the solution to the uncertainties ahead – even if the world never has to experience quite the disaster that they predict.


Monday, May 19, 2008

Peak Oil: Everything is going to change

Connecticut Post Online


By Connecticut State Rep. Terry Backer

There is little government can do about the price of oil. That is not what people want to hear. Yet it is a fact. The U.S. government and all the states have no "Plan B." They continue to rely on a delusional "Plan A" — more oil and cheaper oil all the time. Politicians, generally asleep at the wheel on this issue, have been shocked into trying to do something about the current and future problems arising from oil costs. They are spinning around looking for someone to blame, dazed by the precipitous rise from $50 per barrel last January to $126 this past week.

In an election year, members of Congress are beating the bushes trying to escape the fallout of their years of dozing in their seats. They point at speculation, greedy profit takers or big oil companies, perhaps all true to one extent or another. However, despite the rising chorus of voices pointing out rising demand coinciding with falling or flat production, they seem to be ignoring the 800-pound gorilla in the room that is "Peak Oil" production. Just a few years ago, Mexico, Russia, Norway, England and Indonesia were producing vast amounts of oil for the world market. Today, England and Indonesia are net importers of oil, Russia's production is flat, Norway's production is falling and Mexico has informed us that their giant oil field, Canterall, is in terminal decline and may not be able to export after 2015.

Neither drilling in Alaska, the continental shelf or other ultra-deep-water sites will change the trends of less and more expensive oil. Only changing our infrastructure and consumption patterns will preserve somewhat our current lifestyle.

Connecticut broke out of the pack this month to become the first state in the country to make a major step forward in planning for the increasingly high cost and reduced availability of petroleum. With only 15 minutes remaining until the end of the 2008 General Assembly session, the state Senate approved by unanimous consent and sent to Gov. M. Jodi Rell the "Energy Scarcity and Security" bill.

The measure requires the state to develop a planning scenario model that will predict impacts based on the price of oil. The model will predict future impacts on heating, transportation, food cost, road paving, fleet operations, education, public health I think you get the idea. The outputs of the model will guide us in formulating Plans B, C and D for the state.

The model won't make more oil or cheaper oil; it will reveal to us the impacts on our citizens and our state before they happen. It will allow the Legislature and municipal governments to reprioritize what is possible and what is not.

Thanks to the members of the Connecticut Legislative Peak Oil and Natural Gas Caucus, state government opened its eyes for a quick peek into the future. A small awareness has begun in the Legislature, but it is not an understanding. The public now must educate itself about the issues of oil supply and help lead its government to make the changes that will surely be painful, but needed.

State Rep. Terry Backer is co-founder of the Connecticut Peak Oil and Natural Gas Caucus and a member of the General Assembly's Energy and Technologies Committee. He represents Stratford's 121st Assembly District.


The Peak Oil Crisis: Diesel

Falls Church News-Press


By Tom Whipple

The evidence is mounting that the U.S. might just encounter the first real crisis of the oil depletion age before the year is out.

The crisis at first will be one of spiraling prices for diesel and heating oil, followed by actual shortages here in the United States. In the last two weeks, the wholesale price of heating oil has moved up by nearly 70 cents a gallon and no end is in sight. Many observers are starting to note that what they call “a tight market for distillates” –- the industry’s term for diesel and heating oil – may be what is driving up the price of crude and consequently gasoline.


The reasons for this surge in distillate prices are easy to understand. Conventional oil production, from which distillates are made, has been flat for the last three years while demand from Asia and the Middle East oil producers has been rising rapidly. The trend into higher-mileage diesel powered cars in Europe and other places, which has been underway for many years, is having a major impact. In some European countries, diesels now account for over 70 percent of new car registrations. This change in demand is leaving Europe and a few Asian refiners with a surplus of gasoline but not diesel. The overseas refiners are happy to sell their surplus gasoline to America which still wants prodigious quantities of the stuff. This, believe it or not, helps keep gasoline prices lower than the price of crude suggests it should be, as unusual quantities of gasoline keep arriving at our shores.

This winter America was awash in gasoline which in turn discouraged the refiners from making more since they were not making much money for their efforts. U.S. refinery utilization dropped to abnormally low levels. Now this was fine for gasoline consumers, who continued to drive around burning cheap, in comparison to the price of crude, gasoline. It did nothing, however, for those who burn diesel and heating oil.

Prices for distillates went up and up and inventories went down and down as we are no longer making enough to satisfy the demand even at outrageous prices, and our imports of finished distillates began to drop as everybody in the world wants the stuff. Imports which were running 300-400,000 barrels a day early last year have been about 200,000 barrels a day(b/d) or less in recent weeks. Most of our distillate imports are coming from Canada as nobody else seems willing to sell us this increasingly valuable commodity.

At the same time as our imports were falling, our exports of finished distillates jumped from 275,000 b/d last fall to over 400,000 b/d this spring according to the most recently available data. Much of our diesel exports, by the way, are going to Chile which is suffering from a major electric power shortage and is willing to pay anything to keep the copper mines going. The wave of electricity shortages and rolling blackouts around the world is not helping the situation as the demand for diesel to power emergency generators is growing rapidly.

The arithmetic is simple; U.S. refineries have been producing about 4.2 million b/d in recent weeks. (It did jump to 4.4 last week). However, the net of our imports and exports is taking away about 0.2 million b/d. Since we use about 4.2 million b/d in the U.S. at this time of year, our stockpiles have been shrinking and prices rising. Next fall, when it comes time to start filling all those heating oil tanks, demand will increase to 4.4-4.5 million b/d. For the next four or five months, we usually build our stockpiles by about 15 to 20 million barrels to get ready for the next winter. There was a small increase in stocks last week, but there is a long way to go before fall and the recent earthquake in China suggests Beijing will be increasing its demand for diesel over the next few months.


Friday, May 09, 2008

Oil Lobby Reaches Out to Citizens Peeved at the Pump

Washington Post


By Jeffrey H. Birnbaum

Faced with a national outcry over the high price of gasoline and soaring profits for energy companies, the oil and gas industry is waging an unusually pricey campaign to burnish its image.

The American Petroleum Institute, the industry's main lobby, has embarked on a multiyear, multimedia, multimillion-dollar campaign, which includes advertising in the nation's largest newspapers, news conferences in many state capitals and trips for bloggers out to drilling platforms at sea.

The intended audience is elected officials and the public, with an emphasis on the latter. The industry is trying to convince voters -- who, in turn, will make the case to their members of Congress -- that rising energy prices are not the producers' fault and that government efforts to punish the industry, especially with higher taxes, would only make pricing problems worse.

"We decided that if we didn't do something to help people understand the basics of our industry, we'd be on the losing end as far as the eye could see," said Red Cavaney, the institute's president.

Despite the efforts, Democratic congressional leaders this week again proposed an energy plan that would strip oil companies of billions of dollars of tax breaks and impose a tax on windfall profits. Also, the Democratic presidential candidates routinely pronounce "big oil" as if it were a one-word epithet, said former Oklahoma senator Don Nickles, an energy lobbyist.

Still, the oil lobby thinks it has made significant progress with consumers and will make even more as it continues to spend heavily on public relations. Allied industry groups such as coal and natural gas are also increasing their efforts to curry favor with the public, hoping to improve citizens' sometimes poor opinion of them.

The campaign has stirred outrage among consumer groups. They complain that the industry is using its outlandish profits to make even more money, and that its advertisements use statistics selectively. "It's basically deceptive advertising that dulls the natural and proper reaction of the public," said Mark N. Cooper, research director of the Consumer Federation of America.

Oil company profits have soared lately, bolstered by record crude oil prices. This month, Exxon Mobil reported a first-quarter profit of $10.89 billion, up 17 percent from a year ago, which provoked new congressional complaints. Shell and BP also posted sharp quarterly profit increases. Gasoline prices, meanwhile, have risen to a national record of nearly $3.65 a gallon, and crude oil has hit a new peak of nearly $124 a barrel.

Cavaney will not disclose how much his institute is spending on its campaign, except to say that it is less than $100 million a year, which was roughly the size of the "Got Milk?" ad blitz that featured famous people with milk mustaches.

The price tag for issue-oriented campaigns that lobbies routinely sponsor is huge, said Bill Replogle, an advertising executive at Qorvis Communications.

"A typical issues ad-spend in D.C. might be $2 million to $3 million for a significant campaign," he said. "This dwarfs that, and many national ad buys."

The oil and gas industry has long been considered a powerhouse in Washington, thanks to its big spending inside the Beltway and quietly extensive ties to influential lawmakers from the oil patch. The industry is the third-largest campaign contributor among major industry groups and the fourth-largest buyer of lobbying services, according to the nonpartisan CQ MoneyLine.

The industry has lobbied Congress intensively in the past few years, institute officials said. But such insider connections were insufficient to hold back an anti-industry tide that rolled into the capital after Hurricane Katrina struck in 2005. Energy prices spiked then, prompting a spate of congressional hearings that focused on oil company profits and led to attempts to pass a windfall profits tax.

"That was a wake-up call," Cavaney said. His organization began to research public opinion about, and knowledge of, the industry and found it extremely low. In response, it began a national advertising and public relations drive that has become among the largest of its kind.

This has been especially visible to residents of big cities this year, with prominent ads appearing in major newspapers and commercials during public affairs television.

This week, for example, the institute bought full-page ads explaining what goes into the cost of gasoline (predominantly crude oil and taxes) in USA Today, the New York Times, the Los Angeles Times, The Washington Post and seven other large newspapers.

But a lot of the oil lobby's outreach has been directed at smaller markets, where its press events have gotten prominent and positive coverage. State capitals have been a favorite venue for what the institute calls its "tech tour," an interactive exhibit, including video games, that highlights technological advances that allow companies to extract oil and gas cheaper -- and to burn it cleaner -- than in the recent past.

In March 2007, the tech tour exhibit spent time in Lansing, Mich., the state capital. A year later, it visited West Virginia's capital, Charleston. Local television stations aired prominently placed, upbeat 30-second news segments after each visit.

The lobby has started courting online journalists as well. In November, the institute said it invited bloggers to Shell's facilities in New Orleans and then took them to visit the offshore platform Brutus. The same month, the institute also brought bloggers to Chevron's offices in Houston and its Blind Faith platform under construction in Corpus Christi, Tex. There are more tours in the works.

Coal companies, and the users and transporters of the commodity, are also trying to improve coal's image with a $45 million-a-year campaign, and Oklahoma billionaire Aubrey K. McClendon is spending millions through a foundation to promote natural gas.

R. Skip Horvath, president of the Natural Gas Supply Association, said energy companies are reacting not just to higher prices and profits but to the three-year, $300 million "We" campaign launched in March by former vice president Al Gore urging a reduction in greenhouse gas emissions to combat climate change. "The need to get information out there to explain how energy relates to the environment is key," Horvath said.

But Cavaney of API is not promising instant results. He said that his group's efforts have produced "a very different conversation" about energy, but that the job is not nearly finished.

"There's no expectation that the public will end up loving the oil and gas industry," he said.


(The host of this blog has not yet been invited…)


Thursday, May 08, 2008

Ignoring the Elephant in the Room

Association for the Study of Peak Oil & Gas - USA


By Dave Cohen

1st soldier: Who goes there?
King Arthur: I am Arthur, son of Uther Pendragon, and this is my trusty servant Patsy. We have ridden the length and breadth of the land in search of knights who will join me in my court at Camelot. I must speak with your lord and master.
1st soldier: What? Ridden on a horse?
King Arthur: Yes!
1st soldier: You're using coconuts!
King Arthur: What?
1st soldier: You've got two empty halves of coconut and you're bangin' 'em together.
— Monty Python and the Holy Grail


The disconnect between peak oil concerns and the presidential race is almost total. As prices at the pump rise, each candidate is now talking about their so-called solutions to the problem. Despite clear new warning signs from Russia, Saudi Arabia, Mexico, and Nigeria that peak oil is nigh, the candidates remain unwaveringly oblivious to the true causes of rising fuel prices, preferring instead to dwell on irrelevant—actually, counterproductive—measures like suspending the federal gas tax during the summer months or taxing Big Oil. This is akin to putting a band-aid on a melanoma.

Our nation's capital is a self-reinforcing bastion of ignorance about the longer term oil supply issues, Roscoe Bartlett (R, Md) and a few others excepted. The candidates and their energy advisers are full-fledged members of the "Washington Insiders" club, a group that only talks to each other and gets all of its information from inside the Beltway or pollsters. A brief example suffices to demonstrate the problem. Everybody in our nation's capital reads the Washington Post. If you want to "know" what's going on, it's in the Post. Here are the results of a Google advanced search survey of references to the exact phrase "peak oil" in four newspapers.

Newspaper Hits
Wall Street Journal: 3820
New York Times: 1970
Houston Chronicle: 617
Washington Post: 389

The Wall Street Journal has about 10 times more allusions to "peak oil" than the Post does. Bear in mind that this informal survey includes comments by readers, guest editorials, and assorted other references that are not part of the newspaper's reporting. You will be hard-pressed to find a news article in the Washington Post that uses the term "peak oil." Earth to the Post's Editors, this is Earth calling—"peak oil" is a growing concern outside the Beltway, so it's time to get with the program.

Examining the "oil dependency" positions of the candidates' energy advisers gives us little hope our newly elected government will meet the peak oil challenges head-on in 2009.


Meet the Energy Advisers

Left to right, meet Jason Grumet (Obama), James Woolsey (McCain) and Todd Stern (Clinton). Environment & Energy Publishing TV (E&ETV) presents a video of their presentation to the Society of Environmental Journalists in Washington, D.C on April 11, 2008. The "advisers to the White House candidates discuss their positions on energy, climate and the environment."

What the advisers don't say is just as interesting as what they do say (transcript). Everyone favors a cap & trade policy for carbon emissions, a measure which doesn't affect our liquid fuels dilemma at all. Todd Stern (Clinton) did not even mention oil in his initial remarks, dwelling on climate instead. This passage is typical—

And [there] is quite a constant drumbeat of evidence, which you are all are very well aware of, the loss of sea ice in the Arctic, that huge chunk of ice that dropped off of the Antarctic a few weeks ago, the increase in the intensity of hurricanes, droughts, historic droughts in the Southeast and Southwest and other places in the world, etc.

So, [global warming] is obviously a huge environmental problem, but it's far beyond that. This is a problem that's also going to be a first-order national security issue. It's going to exacerbate food security problems. It's going to exacerbate water scarcity. It's going to make desertification worse, increase resource competition, and produce, undoubtedly, large-scale migration and refugee problems and increase border tension. [emphasis added]

Fao_food_price_indexClimate change will certainly have destructive long term effects, but Stern seems unaware that rising world oil prices, along with the competition with food posed by biofuels, is creating exorbitant cost premiums on food all over the world now (graph left). Not 15 or 20 or 30 years down the road—now. People who had climbed out of abject poverty are now starving or malnourished.

The current food security problems are largely a consequence of oil market fundamentals and misguided attempts to alleviate the supply-side crunch with "green" fuels, not global warming. The drought in Australia has also played a role in world-wide grain shortages, but does not affect palm oil or other highly priced food commodities.

The problems attending American vulnerability to oil price shocks get little attention throughout the E&ETV discussion, especially among the advisers to the Democrats. Only Grumet and Woolsey call out our "oil dependence" as a problem, and only Woolsey briefly discusses specific measures (plug-ins, flex-fuel vehicles, alternative fuels) to remedy the situation. Climate change is viewed as the paramount concern, even in the near term. Peak oil is completely off the radar. This is the "Washington Insider" consensus view, to which we now turn.


NCEP and Oil Shockwave

Obama's adviser Jason Grumet serves as executive director of Washington's influential National Commission on Energy Policy (NCEP). The commission's December, 2004 report Ending the Energy Stalemate tells us a lot about what the candidates' advisers are thinking about U.S. oil security. McCain's adviser James Woolsey also serves as one of the NCEP commissioners.

The principal NCEP report co-chair was John Holdren, who has served as president of the AAAS among other prestigious positions. Dr. Holdren's position on peak oil is therefore of considerable interest to us here in so far as it appears to have influenced the views of the presidential candidates' energy advisers. That view is laid out in his 2007 AAAS Presidential Address Science and Technology for Sustainable Well-Being (Science, January 25, 2008, Vol. 319). Holdren's entire text on the subject is worth quoting, but you can find a shorter version in a slide presentation here.

Much discussion of the oil issue has been framed around the contentious question of “peak oil” (49): When will global production of conventional petroleum reach a peak and begin to decline, as U.S. domestic production did around 1970? The question derives its importance from the proposition that reaching this peak globally will presage large and long-lasting increases in the price of oil, plus a costly and demanding scramble for alternatives to fill the widening gap between the demand for liquid fuel and the supply of conventional petroleum.

Oil-supply pessimists argue that the peak of conventional oil production could occur any time now; oil-supply optimists say it probably won’t happen until after 2030, perhaps not until after 2050. Similar arguments go on about conventional supplies of natural gas, the total recoverable resources of which are thought to be not greatly different, in terms of energy content, from those of crude petroleum.

In my judgment, it’s difficult to tell at this juncture whether the optimists or the pessimists are closer to right about when the world will experience peak oil, but the answer is not very important as a determinant of what we need to be doing. After all, it’s clear that heavy oil dependence carries substantial economic and political risks in a world where high proportions of the reserves and remaining recoverable resources lie in regions that are unstable and/or controlled by authoritarian governments that have sometimes been inclined to wield oil supply as a weapon. It’s also clear that world oil use (which is dominated by the transport sector and, within it, by motor vehicles) is a huge producer of conventional air pollutants, as well as being about equal to coal burning as a contributor to the global buildup of the heat-trapping gas CO2 (29, 42). Given these liabilities, it makes sense to be looking urgently for ways to reduce oil dependence (while working to clean up continuing uses of oil), no matter when we think peak oil might occur under business as usual. [Emphasis added, reference 42 is to the IEA]

Holdren thinks peak oil is "not very important" in so far as we need to cut our oil dependence in any case because of 1) global warming and 2) supply-side security risks. Although Grumet, Woolsey and Stern never mention peak oil, their position is exactly the same—peak oil concerns are overridden by the environmental (climate) problem and geopolitical risks to the oil supply. This defines the mainstream "inside the Beltway" view as laid out, for example, in Joseph Romm's Peak oil? Consider It Solved (Salon, March 3, 2008, and to which I replied here). Romm served as Principal Deputy Assistant Secretary in the DOE from 1995-1998 during the Clinton administration and is now a Senior Fellow with the Center for American Progress, a Washington think tank.

This "climate first, peak oil not" view dominates mainstream thinking in Washington, but neither Dr. Holdren, Dr. Romm or the presidential advisers seems to appreciate the importance of the timing of the peak. It is a question of urgency. To put this in perspective, let's review the results of Oil Shockwave, a simulation run by the NCEP and SAFE in 2005. Obama adviser Jason Grumet was interviewed by Mary O'Driscoll of E&ETV on June 30, 2005. James Woolsey was also a participant in the shockwave simulation. Again, we must quote the transcript at length. Be patient, this is definitely worth reading.

Jason Grumet: ... and Mary I should say that the National Commission on Energy Policy partnered with Securing America's Future Energy, a new group called SAFE, slick new operation in town [in Washington D.C.to carry out Oil Shockwave ]

Mary O'Driscoll: There you go...

Jason Grumet: We were intent, Mary, on not having kind of a Robert Ludlow dirty bomb, you know, airplanes into cooling towers. I mean what we looked at was a number of very, unfortunate, but very realistic events. Some civil unrest in Nigeria, unfortunately life is imitating art. I mean we're seeing that now reported in newspapers, coupled with some low-tech terrorism. We looked at al Qaeda hijacking a tanker and crashing it into the Port of Valdez and at a major explosion at a natural gas facility in Saudi Arabia, which would have taken natural gas off the market requiring them to use crude oil to replace their own domestic energy. And then some terrorism that just caused a real anxiety among the oil producers in Saudi Arabia. You put all that together, you take 3-and-a-half million barrels off the market and let me read to you from my cheat sheet of doom; gasoline prices at $5.74 a gallon, global oil price at $161 a barrel, a recession, two consecutive quarters of a drop in GDP, a drop in consumer confidence by 30 percent, inflation 12.6 percent, a 28 percent decline in the S&P 500, as well as I think some very realistic foreign policy concerns... [and later down the discussion]

Mary O'Driscoll: Well then what do we do in the short term? I mean as you said, the energy bill, and we'll talk about that in just a second, I would like to touch on that in a moment, but I mean in the short term, what do we do?

Jason Grumet: We eat it. I mean this is the reality that I think we were hoping to reveal. You know when the national commission put out its report last December the number one priority issue that we addressed was the need to deal with domestic oil security. I think that we have -- the SPRO is a significant buffer. It's very good news that our economy uses about half as much oil to produce the same GDP now as we did before the first oil embargo. So we are in a better position in some regards than we were before, but we use 25 percent of the world's oil. We possess 3 percent of the world's reserves and we are fundamentally now in a system that is stretched so thin ... now if it wasn't civil unrest in Nigeria it could've been a labor strike in Venezuela. I mean these are very real risks and the answer is prices go up.

Mary O'Driscoll: Right.

Jason Grumet: And we probably wind up using our SUVs a little bit less and saying to ourselves, why hadn't government done something to protect us from this?

Mary O'Driscoll: But I mean you're talking about a recession kind of situation, so I mean will we even be able to drive our SUVs at that time? I mean it's a little unnerving I must say.

Jason Grumet: I did see, I saw the Mad Max movie over the weekend and it kind of prepared me for the realities of $160 a barrel oil.

Mary O'Driscoll: Oh boy!

Jason Grumet: These are career-ending prices for many people in this town [Washington] and I think that, our hope is that collectively the Congress and the administration will start to see that not only do we have to work on these issues as matters of national energy policy, that these are issues of national security, economic strength and our foreign policy prerogative.

As I write this, only $38.80 per barrel separates us from the return of the Road Warrior price-wise. Oil Shockwave simulated the effects of suddenly withdrawing 3.5 million barrels per day (mmb/d) from the world market, and found that this would result in "gasoline prices at $5.74 a gallon, global oil price at $161 a barrel, a recession, two consecutive quarters of a drop in GDP, a drop in consumer confidence by 30 percent, inflation 12.6 percent, a 28 percent decline in the S&P 500." Something else happened instead.

At the end of 2004, the EIA data indicates that world oil production (crude + condensate + gas liquids) stood at 79.905 mmb/d. If we assume only 1% annual growth, which is below the historical average since 1983, the average daily oil supply for 2007 should have been 82.326 mmb/d. What was it? Supply stood at 81.190 mmb/d, a shortfall of 1.136 million barrels with respect to the modest 1% growth target. Most of the "growth" that did occur was in gas liquids, which are not used as a transportation fuel. This has not been a sudden oil shock, but rather forms part of a gradual ongoing oil crunch that some of us call "peak oil."

One can not say that Jason Grumet (Obama) or James Woolsey (McCain) are completely uninformed about oil shocks, but they appear to be very badly informed about the ever-accelerating peak oil squeeze. These Washington insiders don't seem to get it, but most Americans are already on the receiving end of our point. The oil price is $122.20/barrel at this moment. Maybe this should be a seen as a "career-ending price for many people in Washington."


A Solution that Doesn't Make Sense

"To enhance the nation’s energy security and reduce its vulnerability to oil supply disruptions and price shocks, the [NCEP] Commission recommends"—

• Increasing and diversifying world oil production while expanding the global network of strategic petroleum reserves.

• Significantly raising federal fuel economy standards for cars and light trucks while reforming the 30-year-old Corporate Average Fuel Economy (CAFE) program to allow more flexibility and reduce compliance costs. New standards should be phased in over a five-year period beginning no later than 2010.

• Providing $3 billion over ten years in manufacturer and consumer incentives to encourage domestic production and boost sales of efficient hybrid and advanced diesel vehicles.

"Increasing and diversifying world oil production" obviously did not happen, and it's unlikely to happen ever again. New CAFE standards were enacted in the Energy Independence and Security Act (HR. 6) signed into law in December, 2007, but are phased in by 2020. The NCEP report also advocated ramping up alternative fuels like ethanol to "help to diminish U.S. vulnerability to high oil prices and oil supply disruptions while reducing the transportation sector’s greenhouse gas emissions."

The energy plans of Hillary Clinton and Barack Obama generally follow the NEPC guidelines. For example—

Hillary’s plan to cut oil imports by two-thirds—or more than 10 million barrels per day—by 2030 centers on setting tough new fuel efficiency standards for cars and trucks and providing retooling assistance to the automakers to help them meet these standards. Her plan also reduces oil demand by increasing biofuels production and improving the efficiency of industrial oil use. [emphasis added]

Clinton's plan is almost identical to that found in the NCEP report, but contains a greater emphasis on ethanol, which became politically popular after that report was written due to rising oil prices after 2004. The latest energy bill H.R. 6 mandates 36 billion gallons of ethanol by 2022.

A critique of the weak (CAFE standards) or unrealistic (ethanol) measures H.R. 6 contains can be found in my ASPO-USA articles False Hopes for Cellulose (January 23, 2008) and The Sierra Club Solution (January 30, 2008). These steps provide too little help coming too late, an observation which becomes more and more obvious when we consider that a global food crisis is happening now, and the price of oil has soared above $120/barrel.


The Invisible Elephant in the Room

Mitigating anthropogenic climate change is the imperative driving the policies of all the presidential candidates, so their primary energy initiative is a carbon emissions cap & trade system. Problems arising from our oil dependency take a backseat—these are not perceived as urgent and thus can be solved gradually. This approach to our "oil dependency" only makes sense from a climate perspective, which requires us to change our energy consumption and infrastructure over several decades.

The soaring oil price and its underlying causes are the invisible elephant in the room in the presidential race. While many of the candidates' proposals can be chalked up to pandering in an election year, there is no evidence that I can find that any of the candidates gets this "peak oil" problem. For example, Robert Hirsch and Roger Bezdek briefed two low level Clinton staffers on the dangers of a dwindling oil supply. No evidence supports the idea that this briefing has had the slightest effect on thinking in the Clinton campaign.

We are all being sold down the river in this year's election. As the first DOE secretary James Schlesinger said, "We have only two modes—complacency and panic." Complacency rules, and panic awaits. I don't know who the next president will be, but I can foresee that anxious day when our leader-to-be (or Jason Grumet?) exclaims "Oh, no! Oil is $161/barrel! The economy is falling apart! What do we do now?" Don't say we didn't warn you.

Contact the author at dave.aspo@gmail.com


Wednesday, May 07, 2008

The Truth about Oil

FrontPage Magazine


By Vasko Kohlmayer

A recent survey on the environment found that seventy percent of people worldwide think that the planet is running out oil. Only less than one quarter believe that there is enough of it to keep it as a primary source of energy. Petro pessimism runs especially high in the United States where a full two thirds think that the point of depletion is within sight.

Here are some hard facts.

According the Energy Information Administration as of January 2007 there was more than 1.3 trillion barrels of proved crude oil on earth. Even if this were all the oil on the planet there would be no immediate danger of shortages, because at the current rate of consumption – roughly 85 million barrels a day – this supply would last for more than 40 years.

But the 1.3 trillion in these so-called proved reserves refers only to a tiny fraction of earth’s oil, designating only that portion which can be extracted under current ‘economic and operating conditions.’ As it happens, this figure grows with each decade and usually dramatically so.

In 1882, for instance, there were 95 million barrels of proved petroleum reserves. This number jumped to 4.5 billion in 1926 and then to 10 billion in 1932. In 1944 the quantity stood at 20 billion. In 1950 it leaped to 100 billion and in 1980 it was 648 billion. In 1993 the world’s proved reserves grew to 999 billion, and today they stand at 1.3 trillion barrels.

These figures show that our ever-increasing consumption has not over the years reduced the pool of available oil. In fact, the exact opposite is the case – each successive year we have more of it than ever before. Contrary to the conventional wisdom, mankind’s oil supplies are not getting depleted, but they keep continually expanding.

There are several reasons for this. New exploration and advancements in surveying techniques in particular result in fresh finds almost every year.

We have seen a dramatic instance of this at the end of last year when a massive reservoir was discovered in the Tupi sector off the coast of Brazil. Estimated to hold some 8 billion barrels of recoverable crude it was the second largest find in the last 20 years. Two months later an even greater deposit was located nearby which may hold as much as 30 billion barrels. If confirmed, the field would be the third biggest on the planet, behind only the Ghawar in Saudi Arabia and the Burgan in Kuwait. Many scientists are now convinced that intense exploration fuelled by high prices will yield comparable discoveries in other places of the globe.

Adding appreciably to the proved reserves is the continual perfecting of drilling techniques. This makes it possible to tap deposits which because of their depth or geological environment were off limits only a few years ago. Today’s equipment can perform mind-boggling feats of horizontal drilling and there are oil rigs capable of reaching 35,000 feet under the surface, about double of what the previous generation could do.

Rising prices also make available oil which was previously considered unrecoverable commercially, because for whatever reason the extraction cost per barrel exceeded the price it could fetch on the market. With every jump in price, however, more and more of such oil is brought up as its production becomes profitable.

Finally, improvements in extraction processes make it possible to more fully utilize currently harvested reservoirs. Due to technical and economic limitations, normally only a portion of an oilfield can be recovered (it is this part that is referred to as the ‘proved’ reserve). A few decades ago the average oil recovery rate from reservoirs was 20%, but thanks to technological progress this rate is nearing 40% today.

It is the combination of these factors that accounts for the fact that more and more is added every year to mankind’s stock of crude oil. This in turn results in a seemingly paradoxical outcome. Even as our consumption increases with each passing year, the projected depletion point keeps moving further out into the future.

In 1986, for instance, it was estimated that the world’s proved reserves would last 38 years. On that estimate we should only have 17 years worth of oil left. But because the figure in the ‘proved reserves’ column keeps getting larger, we now have more than 40 years.

This dynamic has been in place ever since gasoline began to be mass consumed. Due to the continuing exploration and technological advancement, we can be virtually assured that two or three decades from now we will be talking about another 40 or 50 or more years worth of crude. Cambridge Energy Research Associates, one of the world’s premier energy advisors, predicts that earth’s proved reserves could increase by as much as 25% by 2015.

But there is more to the story. So far we have only been considering crude oil, but crude is not the sole source of this strategic commodity. There are far greater amounts of it locked in other materials such as shale, coal and tar sands.

Proven technologies exist to obtain oil from these resources but they have not yet been widely exploited, because until quite recently the extraction costs – ranging from $40 to $90 per barrel – exceeded the market price. The currently high and rising prices, however, are quickly turning these methods into potentially profitable ventures.

With many companies positioning themselves to take advantage of the opportunity, we are witnessing the birth of a giant industry and one that might eventually eclipse that in crude oil. This is because the estimated global deposits of recoverable shale oil alone exceed three trillion barrels. This is more than twice the world’s current crude oil reserves.

America is especially well endowed on this front as it has nearly 75% of the planet’s known oil shale deposits. The Bureau of Land Management estimates that the Green River Formation of Colorado, Utah and Wyoming alone ‘holds the equivalent of 800 billion barrels of recoverable oil.’ This is three times the proved oil reserves of Saudi Arabia. At current consumption levels, that quantity would satisfy America’s needs for 110 years.

Like shale, coal is another enormous repository of oil. Technology to liquidify it has been around since the 1920s. Germany was the first country to utilize it on a mass scale when during World War II it sought to compensate for a lack of crude. Today this technology is successfully exploited by South Africa whose three liqudification plants produce150,000 barrels a day, the equivalent of the output from a medium-sized oilfield.

The United States – with roughly 27 per cent of the world’s recoverable coal – is especially well positioned to benefit from this resource. A couple of years ago, the New York Times pointed out that ‘the coal in the ground in Illinois alone has more energy than all the oil in Saudi Arabia.’ It is estimated that at a standard conversion rate of two barrels of synthetic fuels from one ton of coal, America’s reserves are equivalent to 20 times the nation’s proved crude. In other words, liquefied coal could satiate America’s petrol thirst for two hundred years.

But even coal’s potential is exceeded by that of tar sands which may hold as much as two thirds of the planet’s petroleum. Tar sands occur in many parts of the world with large deposits in Canada, Venezuela, the United States, Russia and various countries of the Middle East. Canada alone is estimated to have some 1.7 trillion barrels of which about 10% is recoverable at today’s prices and with existing technology. The country’s tar sands alone make Canada second only to Saudi Arabia as an oil resource country.

Tar sands account for one million barrels (about 40%) of Canada's oil production with the number growing each year. America’s largest oil supplier, Canada provides about 20% of our imports of which a substantial portion comes from this untraditional source. So vast is its potential that a CBS broadcast stated ‘the reserves [of tar sands] are so vast in the province of Alberta that they will help solve America's energy needs for the next century.’

With estimated 30 billion barrels of recoverable petroleum from tar sands, America’s own supplies are not negligible either. A concentrated effort to launch wide scale commercial mining was launched in the late 70s, but the subsequent drop in oil prices led to the project’s abandonment. The $100 plus per barrel rate, however, is likely to change this situation in not-too-distant future.

All this should make one thing amply clear – there is enough oil to go around for a very long time. Even on conservative assumptions – accelerating consumption and few new discoveries – earth’s oil supplies should last for at least a century.

This, however, is the worst case scenario. We can be reasonably certain that new exploration and advancing technologies will in coming years greatly add to the quantities of available oil. So much so that Morris Adelman, Professor Emeritus in Economics at Harvard, has argued that the ‘amount of oil available to the market over the next 25 to 50 years is for all intents and purposes infinite.’

The notion that this planet is running out of oil is one of the great misnomers of our age. There is more oil available today than there was a hundred, fifty or ten years ago. And there is every indication that this trend will continue into the future. Instead of lamenting that we are running out of it, it would be far more accurate to say that we are constantly bumping into new oil. This is why two years ago the Economist headlined an article on the topic The Bottomless Beer Mug.


The general public, however, is largely ignorant of these facts. The divergence between the conventional wisdom and reality could hardly be any wider. Profoundly misinformed and alarmed, people place false hopes in misguided alternatives. Rather than implementing harmful, inefficient and expensive substitutes, we should insist that our government lift the obstacles which prevent us from availing ourselves of this superabundant resource.


Tuesday, May 06, 2008

The end of cheap oil is now

People's Weekly World


By Mark Hertsgaard

Never underestimate a politician's ability to pander. With gasoline prices nearing $4 a gallon and the summer driving season approaching, presidential candidates John McCain and Hillary Clinton have responded by calling for a consumer holiday from the federal gasoline tax. But both McCain and Clinton must know that blaming taxes for soaring gasoline prices is absurd. The tax hasn't changed. What has changed is the price of crude oil, which hit a record $119 a barrel in April.

Get used to it. Contrary to McCain and Clinton's feel-good simplifications, there's no easy answer to this problem. Gasoline prices are rising-and will continue to rise-because global demand is outstripping supply. Combine America's gas-guzzling ways with millions of new middle class consumers in China and India, and global demand is bound to increase for years to come (absent a global economic depression). Meanwhile, global oil supplies are essentially flat. This mismatch pushes up prices.

The real issue that McCain, Clinton and anyone truly serious about gas prices must confront is peak oil. Peak oil theorists do not suggest that the Earth will surrender its last drop of oil anytime soon. Rather, they contend that the world's oil supply has, or soon will, hit its upper limit, and then shrink. This, the end of abundant oil, spells the end of cheap oil. As limited supply confronts growing demand, the result will be volatile higher prices and shortages that could bring back the gas lines of the 1970s. And that's just for starters. The modern world needs cheap oil like the human body needs oxygen; remove it, and we could be headed for economic decline, resource wars and social chaos.

Conventional wisdom says the market will solve the problem: higher prices will call forth more supply. But a growing number of oil industry insiders are disputing that and instead backing the peak oil thesis. Though largely unnoticed by the media, a decisive moment in the debate came last September, when James Schlesinger declared that the "peakists" were right. You don't get closer to the American establishment than Schlesinger, who served as head of the CIA, Secretary of Energy, and adviser to oil companies. In a speech to a conference sponsored by the Association for the Study of Peak Oil, Schlesinger said, "It's no longer the case that we have a few voices crying in the wilderness. The battle is over. The peakists have won." Schlesinger added that many oil company CEOs privately agree that peak oil is imminent, but don't say so publicly.

One who does is Royal Dutch Shell CEO Jeroen van der Veer. Without using the term peak oil, he warned this year that, "After 2015, easily accessible supplies of oil and gas probably will no longer keep up with demand."

The United States, with its two hour commutes, three car families, atrophied mass transit and petroleum-based food system, is most vulnerable to an oil shock. But similar vulnerabilities exist in most industrial societies, not to mention China and other emerging economies that are only now getting a taste of oil-fueled modernity.
Ironically, peak oil could actually harm the environment, making climate change worse. One might think that less oil would mean less consumption and lower carbon dioxide emissions. But the modern world is addicted to oil. If peak oil arrives before the addiction is broken, societies will likely do whatever is necessary to keep their addictions fed. That is already happening in Canada, where Exxon-Mobil and others are mining so-called tar sands-a very dirty fuel that carries a much greater carbon footprint than conventional oil.

Luckily, there are smarter ways to fight both peak oil and climate change. The first step is a massive investment in energy efficiency-by far the quickest, cheapest way to reduce consumption. This will buy us time to deploy alternative fuels, reduce demand via better mass transit and less sprawl, and green our economies. Plug-in hybrid cars, for example, get over 100 miles per gallon-double what today's generation of hybrids achieves. And if plug-in hybrids rely on electricity generated by solar, wind or other green energy sources, they will fight both climate change and peak oil.

More encouraging news: some top government officials understand what needs to be done. For example, David Paterson, the new governor of New York state, has spoken in detail about peak oil and the necessity of investing in energy efficiency and alternative energy sources.

As it happens, Governor Paterson is a strong backer of Senator Clinton. Maybe they should talk. And they should invite McCain-and Senator Obama-to join them. Peak oil seems poised to become the next big idea commanding the attention of governments, businesses and citizens the world over. We need our presidential candidates to talk sense about it, not use it to make cheap political points.

Mark Hertsgaard (www.markhertsgaard.com) is the environment correspondent for The Nation and the author of many books, including Earth Odyssey: Around the World In Search of Our Environmental Future.

(c) 2008 Blue Ridge Press