Straits of Hormuz from Space Shuttle
Straits of Hormuz as viewed from NASA's Space Shuttle. The Musandam Peninsula, controlled by Oman points towards Iran at top of photo. The land mass stretching along the leading edge of the Shuttle's starboard wing is the United Arab Emirates. Some two-thirds of the world's remaining oil reserves are locked under this troubled region.

Uncertainty Haunts GAO Peak Oil Report

Paucity of data, conflicting methodologies and lack of coherent government policy is a cocktail for future energy crisis

By EV World

It is a dark and stormy night...

A semi-truck hauling gasoline races along a twisting mountain road shrouded in a thick gauze of fog. The truck's lights penetrate only yards ahead, yet the driver races on, shifting gears and picking up speed. He's got a life to lead and a warm bed ahead.

Yet somewhere out there on Route 666, the bridge across Campbell's Gorge is unfinished, the spans still incomplete. Disaster looms and although the driver has been warned, he is too preoccupied with the road immediately visible in his headlights to care about some remote and distant threat.

Today, the United States Government Accounting Office or GAO issued its 82- page report on peak oil, entitled Crude Oil -- Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production [1.1MB]. It acknowledges three key facts: peak oil is real, no one is sure when it will occur and without consistent government policy that acknowledges its reality and plans for its eventuality, the United States, perhaps more than any other nation, will be the most seriously harmed economically.

The report, initiated at the request of Maryland Representative Roscoe Bartlett who has been the leading voice in Congress on the peak oil question, acknowledges that a decline in oil production, both conventional and unconventional, will occur within essentially one generation, likely sometime between now and 2040. The disparity in dates is attributed to the wide variance in the data and methodology used by various research entities from individuals like Dr. Colin Campbell and Professor Kenneth Deffeyes who see peak happening in the next few years to the USGS and Cambridge Research Associates who see a longer, but still historically brief window.

To quote the report, an advanced copy of which EV World obtained from Congressman Bartlett's office...

The timing of the peak depends on multiple, uncertain factors that will influence how quickly the remaining oil is used, including the amount of oil still in the ground, how much of the remaining oil can be ultimately produced, and future oil demand. The amount of oil remaining in the ground is highly uncertain, in part because the Organization of Petroleum Exporting Countries (OPEC) controls most of the estimated world oil reserves, but its estimates of reserves are not verified by independent auditors.

For example, Kuwait's official estimate of its oil reserves remained unchanged between 1991 and 2002 despite having pumped 8 billion barrels of oil during that period, while making no new discoveries.

Also complicating the picture is world oil demand, which fluctuates with the state of the world's economy; when times are good, demand is high and prices respond, usually upward until consumer resistance to price, slows demand, which cascades from lower prices to less production in an increasingly volatile roller coaster ride for producers and consumer alike.

The report goes on to note that "countries with medium or high levels of political risk contained 63 percent of the proven worldwide oil reserves." These include Iraq, Iran, Nigeria and Venezuela.

Using a measure of political risk that assesses the likelihood that events such as civil wars, coups, and labor strikes will occur in a magnitude sufficient to reduce a country’s gross domestic product (GDP) growth rate over the next 5 years, we found that four countries—Iran, Iraq, Nigeria, and Venezuela—that possess proven oil reserves greater than 10 billion barrels (high reserves) also face high levels of political risk. These four countries contain almost one-third of worldwide oil reserves.

The GAO points out that while the United States is the third largest oil producing nation in the world, our own production peaked 27 years ago and we are increasingly dependent on imported oil, much of it from these same troubled sources, to meet our own growing demand, which is coming into increasing competition from rising economies in China and India.

The authors of the report admit that its focus is primarily on the transportation sector, saying "We chose transportation technologies because transportation accounts for such a large part of U.S. oil consumption and because DOE and other agencies have numerous programs and activities dealing with technologies to displace oil in the transportation sector."

However, they also found that these technologies face significant hurdles.

In the United States, alternative transportation technologies face challenges that could impede their ability to mitigate the consequences of a peak and decline in oil production, unless sufficient time and effort are brought to bear.

They note that "Even if ethanol were to become more cost-competitive with gasoline, it could not become widely available without costly investments in infrastructure, including pipelines, storage tanks, and filling stations."

Advanced technology vehicles that include conventional hybrids, plug-in hybrids and hydrogen fuel cell vehicles face significant cost barriers from a price disparity with current engine technology as low of $2,000 for hybrids to $35,000 for a fuel cell stack. Today, hybrids represent just 1 percent of all new car registrations in America. The report cautions...

Key alternative technologies currently supply the equivalent of only about 1 percent of U.S. consumption of petroleum products, and DOE projects that even under optimistic scenarios, by 2015 these technologies could displace only the equivalent of 4 percent of projected U.S. annual consumption.

The GAO states that development of alternative fuel technologies is tied to the price of oil and that should the price drop, research, development and deployment of those technologies will suffer. It warns, "Under these circumstances, an imminent peak and sharp decline in oil production could have severe consequences, including a worldwide recession. If the peak comes later, however, these technologies have a greater potential to mitigate the consequences."

After also evaluating the mitigation potential of various nonconventional petroleum sources from tar sands to shale to heavy crude to coal-to-liquid, it concludes, "It is unclear how much oil can be recovered from nonconventional soruces... Currently, production from key nonconventional sources of oil -- oil sands, heavy and extra-heavy crude oil deposits, and oil shale -- is more costly and presents environmental challenges."

The authors also express concern that "Federal agency efforts that could reduce uncertainty about the timing of peak oil production or mitigate its consequences are spread across multiple agencies and generally are not focused explicitly on peak oil."

They conclude with a warning and a recommendation.

While the consequences of a peak would be felt globally, the United States, as the largest consumer of oil and one of the nations most heavily dependent on oil for transportation, may be particularly vulnerable. Therefore, to better prepare the United States for a peak and decline in oil production, we are recommending that the Secretary of Energy take the lead, in coordination with other relevant federal agencies, to establish a peak oil strategy. Such a strategy should include efforts to reduce uncertainty about the timing of a peak in oil production and provide timely advice to Congress about cost-effective measures to mitigate the potential consequences of a peak.

Times Article Viewed: 16536
Published: 29-Mar-2007


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