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Peak Oil Now? If so, Oil Prices Not Likely to Decline–Ever

August 18, 2008

By Gillette, Becky

There has been a lot of talk in recent years about “peak oil” – defined as the point where the maximum amount of oil that can be recovered is being pumped. After that, oil becomes increasingly scarce and expensive.

If sticker shock at the gas pumps hasn’t convinced you, talk to Dr. Darrel Schmitz, head of the Department of Geosciences, Mississippi State University.

“World oil reserves have probably peaked yesterday, today or tomorrow – literally right about now,” Schmitz said. “Production worldwide will start declining relatively soon. We are right at that point.”

As an oil industry expert told Schmitz a few years ago, unless some other super giant oil fields are discovered, most everything else currently in production or planned isn’t enough and can’t be put online soon enough to prevent increasingly world demand from eclipsing supplies.

“Rest assured that for nearly 100 years people have been looking for super large oil finds, so it is not too likely there will be more of those,” Schmitz said. “We have had booms and busts in the oil industry for almost a century, with each one getting a little bigger. The last bust was in 1980.”

Schmitz recalls when gasoline was 19 cents per gallon, and complaining when it went up to 29 cents per gallon. Gas was pretty stable at the $1 per gallon mark for about 20 years. Now it is $4 per gallon, and increased energy costs are affecting a huge segment of the economy.

A key factor is that U.S. demand is far greater than what can be satisfied by domestic production, and then relying on imported oil. That worked okay when the rest of the world wasn’t using that much energy. But now there is increasing demand from developing countries such as China and India.

“Because we are importing so much foreign oil, we are not in good shape,” Schmitz said. “Other countries that are our allies will increase production, but international companies don’t have to sell to us because they have China and other markets. Most of the world doesn’t feel too sorry for us because we consume way more than our share of energy in this country compared to other developed countries.”

National energy policy?

How did we get in this mess? Schmitz lays blame at the feet of the federal government because it hasn’t had any true energy policy in place for more than 20 years. What is happening was inevitable, and the U.S. should have had been ready by focusing on conservation and alternative energy technology development.

“As long as crude oil was inexpensive, it was hard to beat,” Schmitz said. “It is like water generated electricity. Put up a dam and let water turn turbines. When other sources of energy are not readily available, the price of oil goes up. Lots of alternative fuels are feasible financially now only because of the current high cost of oil. But technology has not been put in place to take advantage of that situation and rapidly move forward with alternative methods. Almost anything we can do in this country for large-scale energy production will take five to ten years to start delivery on a large scale.”

He considers it positive that the country has started conserving like it did in late ’70s and early ’80s. That will have an impact. But that alone this time will not have the success it had before.

“Just because we conserve won’t cause the price of oil to magically change because there is increasing world demand,” Schmitz said. “Conserving could help stabilize what is going on, but it is not going to cause a decrease in the cost of oil.”

Recent polling has shown that increasing numbers of Americans are supporting additional domestic oil drilling over conservation. Drilling off the coast of Florida or in the Alaska National Wildlife Refuge (ANWR) would help ease or stabilize the situation.

“People are being willing to talk about drilling ANWR and off the Coast of Florida who weren’t a little while ago,” Schmitz said. “Because of the impact on their pocketbooks, ‘go get it after all’ is the attitude. But even if we are going to do that, it isn’t going to last forever.”

The federal government needs to do something, but that doesn’t necessarily mean taxing high profits from oil companies. Big oil companies are investing profits in more oil exploration and in developing alternative energy.

“I don’t feel people realize that is the case,” Schmitz said. “One relatively shallow oil well costs a minimum of $1 million to drill today. If you are exploring for new oil, the odds are roughly only 10% that well will produce. There is no way to know for sure oil is down there until you drill a well, and it is expensive to drill. A lot of people call the university and want their land tested for oil. I say, ‘Do you have a million dollars?’ And then the odds are only 10% that you will hit something.”

There are methods of enhanced oil recovery, which is producing more oil out of existing oil fields. It adds some cost, but at the price of oil today, it is now more economical to recover more reserves.

Other sources

There are other fuel alternatives including coal. The U.S. has sometimes been called “the Saudi Arabia” of coal because it has such large coal reserves. But many people disdain coal because of pollution that includes greenhouse gases.

Schmitz said “clean coal” technologies are being developed such as coal gasification projects. But not enough effort has been placed into developing coal technologies.

“Clean coal technology is tremendously better, but we aren’t there yet,” he said. “We aren’t ready. It is going to take minimum of fivers 10 years for clean coal technologies to start helping the situation. It is now economically feasible because of oil prices when it wasn’t five years ago. Economics plays a big part. But we needed more proactiveness to it to be ready for what was coming. I blame politicians for sticking their heads in the sand for the past 25 years.”

Another alternative fuel source that some people oppose because of safety concerns and others because of the tremendous cost is nuclear energy. Schmitz said it could be one of the cheapest forms of power out there, but it will take five years to even start construction because of red tape.

Copyright Mississippi Business Journal Jul 21, 2008

(c) 2008 Mississippi Business Journal, The. Provided by ProQuest LLC. All rights Reserved.