Experts Warn of Oil Peak

Sources from around the world, including investment analysts and a U.S. government report, are now saying the same thing: world oil supplies are about to decline, risking major effects on the world's economy and politics.

The leading energy analysts who foretold Enron's demise are arguing that the world's major oil companies are almost tapped out. Herold—a research-only firm that calculates fair-market values of several hundred publicly traded energy companies—provides clients with estimates of when the output of each of the world's biggest energy companies will peak and begin to decline. Predicted peak years range from 2007 to 2009 for the world's seven largest publicly traded oil companies.

Critics of Herold's predictions claim that peaking of oil and gas production could be delayed by the development of new oil fields and technologies, such as turning tar sands and shale into fuel, which could become economically viable as fuel prices climb. However, Herold isn't the only Wall Street firm predicting that the peak of oil production is coming soon. In early December 2004, Deutsche Bank predicted global oil production will peak within the next 15 to 20 years. The Deutsche Bank report also stresses China's surging demand and global political instability caused by oil shortages, which “could trigger a shortage shock leading to a price crisis.”

In recent months, oil prices have reached record levels of over $50 per barrel. Recently, the Department of Energy issued a report saying that it expects crude oil prices to stay near or above $50 per barrel for the rest of this year. This time last year the agency was predicting that crude oil would cost about $29 per barrel throughout 2005.

According to the International Energy Agency, oil consumption has caught up with oil production. In a shift from its past stance, the IEA now recommends promoting both alternatives to oil and energy conservation. In a different report, the IEA proposes drastic cutbacks in car use and fuel consumption. Those cutbacks would be achieved by measures ranging from car-pooling to police-enforced driving bans.

The agency was created in the mid-1970s by the industrialized nations after the Arab oil embargo to advise governments about energy security and conserving oil to protect their economies from fluctuations in its price.

The IEA's recommendation is supported by another recent report, this one for the U.S. Department of Energy by a private scientific and military contractor, Science Applications International Corporation (SAIC).

World oil peaking “is going to happen,” the report says, only the “timing is uncertain.” The authors note that new finds of oil are not replacing oil consumed each year. Despite the advances in technology, reserves are becoming increasingly difficult to replace. The report also states that “... the economic loss to the United States could be measured on a trillion-dollar scale.” The authors dismiss the idea that markets will solve the problem and calls for the intervention of governments.
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