NCPA - National Center for Policy Analysis

OIL'S WELL

November 17, 2006

Oil industry historian Daniel Yergin won a Pulitzer prize this week for his 800-page best-seller, "The Prize: The Epic Quest for Oil, Money and Power."  His analysis found that a remaining 3.74 trillion barrels of total global oil reserves is more than three times as much as "peak oil" theory contends. 

  • Originated in the 1950s by Shell Oil Co. geologist M. King Hubbert, that hypothesis forecasts a sharp decline in world oil production right after it reaches its peak. 
  • Modern peakists estimate the world today has only 1.2 trillion barrels of oil left -- somewhat more than the 1.08 trillion used. 

Yergin's study reveals that Hubbert's approach was riddled with flaws:

  • He underestimated the effectiveness of new technologies in discovering, retrieving and refining oil resources.
  • His forecasts of oil production over the following decades in the lower 48 states were hugely understated -- by 66 percent in the case of 2005.
  • He failed to anticipate the huge finds in Alaska and the Gulf of Mexico.
  • Even leaving new technology aside, Hubbert's prediction of a steep downward curve after a production peak is based on false assumptions regarding typical oil fields.
  • He ignored the impact of price and demand in driving production.

Yergin believes that global production can actually be expected to reach an "undulating plateau" that could last for decades before beginning a slow decline.  That gives the world a number of decades to prepare -- enough time for long-term deliberation so we can decide wisely regarding the eventual transition toward alternatives to fossil fuels.

Yergin points out that each time there have been fears of oil running out, technology and the opening of new frontier areas have banished the specter of decline.  He concludes that there's no reason to think that technology is finished this time.

Source: Editorial, "Oil's Well," Investor's Business Daily, November 17, 2006.

 

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