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THE recommendations of the President’s task force on energy that
the Executive Secretary, no less, headed were disappointing.
They were short-term adjustment measures that
almost certainly will have to be revised with the next spike—or
slide—in the price of crude oil.
As political gesture, they were probably enough
to placate the hoi polloi. But lacking even a medium-term prognosis
they have little strategic value.
I understand the reluctance of Cabinet officials
to venture a long-term forecast given that they have only until 2010
in power. It has to be made nevertheless because the policy choices
that energy planning entails require the long view.
The key question: Is the world really running
out of oil? This is not the same as asking if the era of cheap oil
is over. The evidence is irrefutable. We’ll never see $60 or $80
per barrel of crude oil again. It’s even likely that we might have
to buy crude oil by the liter. A barrel of crude is 159 liters. Two
days ago, Dubai crude was $0.92 a liter. This is what we paid a week
ago for a liter of gasoline.
On whether the world is running out of oil,
expert opinion is divided although not as neatly as a policymaker
would wish.
Since Marion King Hubbert predicted in 1956 that
US oil production would peak, and gradually decline, between 1965
and 1970 there had been several forecasts based essentially on
Hubbert’s methodology. He was roundly derided when he read his
paper at a meeting of the American Petroleum Institute but his
prediction was right on the nose. In 1970, US production topped out
at 9.4 million barrels a day and has since been on a downward path.
Before Hubbert died in 1989, he predicted that world oil production
would peak between 1970 and 2000.
Robert Hirsch agrees. In his 2004 report to the
Atlantic Council of the United States, Hirsch said that “the age
of plentiful, low-cost petroleum is approaching an end” and that
“unless mitigation is orchestrated on a timely basis, the economic
damage to the world economy will be dire and long lasting.”
In 2005, the US Department of Energy said that a
20-year “severe liquid fuels problem” will ensue that requires
planning for a post-petroleum economy.
One of the most influential proponents of the
oil-is-running-out scenario is Matthew Simmons, an adviser of
President George W. Bush on petroleum policy. In his book, Twilight
in the Desert, Simmons wrote: “Saudi Arabian oil production is at
or very near its peak sustainable volume [if it did not, in fact
peak almost 25 years ago] and is likely to go into decline in the
very foreseeable future.”
Not everyone concurs. A 2000 report by the US
Geological Survey put Saudi Arabia at the very top of countries with
large undiscovered oil deposits. This potential is unconfirmed
because the Saudis refuse all requests for verification. The
suspicion is that the Saudis are being very conservative in
estimating their oil reserves. However, Sadad al Hussein, until
recently the head of the department of oil exploration of Saudi
Arabia, said in October 2005 that “it’s unrealistic for the
world to be expecting such high numbers [20 million barrels per day
from Saudi Arabia alone] to base policy upon.” He estimates that
world oil production would peak at 95 million barrels per day in
2015.
This is an estimate for “conventional” oil.
If the 3.5 trillion barrels in Venezuelan clay in the Orinoco basin
and the Athabasca tar sands in Canada were included, 30 percent more
could be added to total capacity by 2010, according to Peter Huber
(Wall Street Journal, January 15, 2006).
Once the technological and environmental
barriers are overcome, these “unconventional” sources could come
into production by 2020. Technologies like horizontal drilling and
4-D exploration make it possible to recover oil from wells that at
present are hard to get at.
One reason for the tight supply of crude today
is the limited refining capacity of the world. Ali al-Naimy, the
Saudi oil minister, declared: “Give us the customers and we will
pump more oil.”
aThe most outspoken critic of peak oil theory is
Michael Lynch of the Massachusetts Institute of Technology’s
Center for International Studies. He thinks that Simmons’s
Twilight in the Desert is “embarrassingly bad” and that it’s
“illogical” to assume that Saudi Arabia would pump its oil wells
dry.
On the Hubbert Peak, Lynch remarked that
reliance on geology is too simplistic. “Demand determines
production, not geology,” he said.
Lynch is one of the few analysts who think that
the present oil crisis will be short-lived. The “general price
trend is actually downwards,” he said. At the current price of
crude, there will soon be a spate of investments in oil and gas
exploration. The only restraints are policies to mitigate climate
change.
Obviously, not all these analysts are right or
should be believed. What our own experts in the Department of Energy
should be doing is computing the contribution of oil to total
output, sector-by-sector, product-by-product and determining a price
of petroleum that the economy can absorb. If the price of oil
becomes a threat, then strategic energy planning should seek to
change national energy policy, identify the technologies and the
investments that are required not just to survive but to grow.
The two-day meeting of the energy task force is
clearly not enough. It should continue its work but with as much
information as it can put together so that simulations of different
outcomes can be drawn in order to guide specific policy choices that
have the lowest possible social cost.
This is not the time for short-sighted thinking.
L’audace, toujours l’audace, to coin a phrase.
opinion@manilatimes.net
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