By Peter Beaumont
and John Hooper
London Observer
LONDON - The world faces a devastating oil crisis in the early years of the new millennium, according to a new assessment of conventional oil reserves.
Global production will peak as early as 2002, then decline over the next 70 years, the analysis says. As oil stocks decline, prices will rise steeply, making the oil crises of 1973 and 1979 look "minor and transitory" by comparison.
The fears, which emerged as oil prices hit a 25-year low, contradict the conventional industry view of continuing low prices for the foreseeable future, suppressed by increasing reserves of oil and the development of such new areas as the Caspian Sea region.
At the center of the argument are claims that oil-producing nations and companies have deliberately overestimated their oil reserves for political and economic reasons, and major new finds are increasingly unlikely.
Fears that the world is rapidly approaching peak oil production and inevitable depletion have galvanized the group of 8, the leading industrial nations, into taking action. At a recent Moscow summit, the members were warned that the prices will increase sharply and that "many multibillion-dollar projects" will be required to meet the energy gap.
The concept of oil shortages remains contentious because of the many cries of "wolf" by oil economists after the crises of the 1970s, including warnings that all available stocks would be depleted by the end of the 20th century. This time, however, the warnings are being sounded by a small group of international petroleum geologists who have built new mathematical models to predict peak production and ensuing decline.
Their model is based on a formula devised in the 1950s by geologist M. King Hubbert and used with extreme accuracy in the oil industry to predict peak yield in individual fields. Now applied on a global scale, the model shows oil production as a bell curve with the apex at the point when half of the available oil has been used up. Suddenly the glass that the world had considered to be almost full has been revealed to be half-empty.
Researchers have also used an offshoot of chaos theory to plot probable distributions of as yet undiscovered oil and to suggest that the majority of the world's oil has already been discovered.
The leading proponents of the new theory are Colin Campbell and Jean Laherrere, both of whom have been employed in the oil industry for 40 years and now are working with Petroconsultants, owner of one of the most authoritative databases on oil production and reserves in Geneva.
Unlike those who predicted global oil exhaustion in the wake of the latest oil crises, Campbell, author of The Coming Oil Crisis, insists that it is not the point at which the world runs out of oil that is crucial, but the halfway point, when production begins to taper off and demand forces prices up.
"The impression that the oil companies give is that oil will just keep on coming," Campbell said. "The reason that they want to do this is simple. They operate in a global market and they have to protect their shares. Unfortunately, it is simply not true. There is a finite amount of oil."
Campbell and Laherrere say the key issue in recent years has been the false impression that oil reserves have been "growing" as companies have revised their estimates upward.
In a paper written for the journal Scientific American earlier this year, Campbell and Laherrere reported that their research into reserve estimates published by the oil industry had identified wide spread systemic errors, including the widely used practice of offering, the highest possible estimates for reserves.
"According to most accounts world oil reserves have marched steadily upward over the past 20 years," they said. "Extending that trend into the future, one could easily conclude. as the U.S. Energy Information Administration has said that oil production will continue to rise unhindered for decades to come, increasing almost two-thirds by 2020.
"Such growth is an illusion. About 80 percent of the oil produced today flows from fields that were found before 1973, and the great majority of them are declining."
Campbell and Laherrere are not alone in predicting peak production early in the next millennium. An analysis by Craig Bond Hatfield of the University of Toledo and John Edwards of the University of Ohio, using official U.S. Geological Survey figures, says conventional oil production will peak early in the next century, even with the most optimistic estimates.
Hatfield, who has been studying oil depletion for 18 years, warns that unless governments begin investing heavily in alternative energy sources, the oil shortages of the 1970s, which caused rampant inflation and damaged economic growth, will be "minor events compared with what is going to happen. "The world is only just now waking up to what is going on," Hatfield said. "The problem is that we are working in a field made controversial by the wildly incorrect forecasts made after the last oil shortages, which said that oil would be used up by the end of this century.
"These were not made by petroleum geologists and they have damaged our case. I can only hope over the next decade that we are able to develop viable alternatives to the oil-based economy but we need to get going now. We will not manage overnight and it requires time and a gigantic investment. What I fear is that we are running out of time."
According to Hatfield's research, which mirrors that of Campbell and Laherrere, most of the reported "growth" in oil reserves in the past 10 years has been from revised estimates. In a paper submitted to the journal Nature last year, he wrote that in 1988 and 1989, Venezuela, Iran, Iraq, the United Arab Emirates and Saudi Arabia - all members of the oil cartel known as the Organization of Petroleum Exporting Countries reported upward revisions of 277 billion barrels of oil, accounting for almost the total growth in global oil reserves from 1987 through 1990, some oil executives are convinced of the dangers ahead, including Franco Bernabe, chief executive of the Italian oil company Eni SpA. On a visit to London last year, Bernabe, a former economics professor, warned that despite the much reported improvements in horizontal drilling technology to increase yield from existing fields, the world was being "complacent" about the availability of cheap oil.