Microsoft Word - Peaking of World Oil Production - Recent Forecasts - NETL Report Version

Disclaimer

This report was prepared as an account of work sponsored by an agency of
the United States Government. Neither the United States Government nor
any agency thereof, nor any of their employees, makes any warranty,
express or implied, or assumes any legal liability or responsibility for the
accuracy, completeness, or usefulness of any information, apparatus,
product, or process disclosed, or represents that its use would not infringe
privately owned rights. Reference therein to any specific commercial
product, process, or service by trade name, trademark, manufacturer, or
otherwise does not necessarily constitute or imply its endorsement,
recommendation, or favoring by the United States Government or any
agency thereof. The views and opinions of authors expressed therein do
not necessarily state or reflect those of the United States Government or
any agency thereof.

Acknowledgements

This work was sponsored by the U.S. Department of Energy, National
Energy Technology Laboratory, under Contract No. DE-AM26-
04NT41817. The author is indebted to NETL management for their
encouragement and support. Helpful comments were provided on an
earlier draft by Ken Kern, SAIC, Larry Kummer, UBS, and Roger Bezdek,
MISI. Their assistance is greatly appreciated

Executive Summary

Because oil is a depleting, finite natural resource, world
conventional oil production will reach a maximum, called “the peak,”
after which production will decline. Using differing methodologies
and information of widely varying quality, experts and organizations
have attempted to forecast the likely year of conventional oil
production peaking. Their range of estimates extends from late last
year to an apparent denial that it will ever happen. Almost all
forecasts are based on differing, often dramatically differing
geological assumptions. Explicit account of investment rates in
new and expanded production has been relatively rare.

Because of the large uncertainties, it is difficult to define an
overriding geological basis for accepting or rejecting any of the
forecasts. However, the IEA recently warned that worldwide
investment in expanded oil production has been considerably less
than needed to continue world oil production that is adequate to
meet expected world demand. Thus, geological limits may be
yielding to investment limitations.

As noted in previous literature, peak oil presents the world with a
risk management problem of tremendous complexity and enormity.
Prudent risk minimization requires the implementation of mitigation
measures roughly 20 years before peaking to avoid a very
damaging world liquid fuels shortfall.

Since it is uncertain when

peaking will occur or whether it will be due to geological or
investment limitations, the challenge is indeed vexing.

I. Introduction

For decades, the world has been consuming increasingly more oil than it has
been finding. Because oil is a depleting natural resource, world conventional oil
production will reach a maximum, called “the peak,” after which production will go
into decline.

Using different methodologies and information of widely varying

quality, various experts and organizations have attempted to forecast the likely
year of oil production peaking. Forecasts vary because of uncertainty in the data
and because various forecasters tend to be more optimistic or more pessimistic
about future prospects based on their experience and interpretation of available
information. The mitigation of the post peaking oil shortage will require extremely
large-scale action, starting roughly 20 years before the onset of peaking,

so it is

important to have a general idea of when peaking might occur.

The purpose of this report is to summarize forecasts for the peaking of world oil
production with emphasis on those forecasts that have been publicly noted since
early 2005, when our report on peak oil mitigation was released.

In addition, we

revisit and update the forecasts in our earlier report. Our focus has been on
people and organizations that have special oil industry expertise and/or
significant influence, recognizing that we may have overlooked some that are
worthy of mention.

The organization of this report is as follows: Section II provides a brief
description of peak oil, including factors that make it’s forecasting so difficult.
Section III provides a list of notable recent statements relating to the end of the
era of easy and/or cheap oil. Section IV provides tables of important recent peak
oil forecasts. Section V revisits the peak oil forecasts noted in our 2005 study on
peak oil mitigation

and provides some updates. Section VI describes recent IEA

views on world oil production investment, and Section VII provides some general
commentary and concluding remarks.

II. The Peaking of World Oil Production

According to the International Energy Agency (IEA), “Worldwide, the rate of [oil]
reserve additions from discoveries has fallen sharply since the 1960s. In the last
decade, discoveries have replaced only half the oil produced. Nowhere has the
fall in oil discoveries been more dramatic than in the Middle East, where they
plunged from 187 billion barrels in 1963-1972 to 16 billion barrels during the

The distinction between conventional and unconventional oil is discussed in Section IV.

Hirsch, R.L., Bezdek, R., Wendling, R. Peaking of World Oil Production: Impacts, Mitigation &

Risk Management. DOE NETL. February 2005.

Ibid.

This section is excerpted from Bezdek, R.H., Wendling, R.M., Hirsch, R.L. Economic Impacts of

U.S. Liquid Fuel Mitigation Options. DOE/NETL-2006/1237. July 8, 2006

decade ending in 2002.”

No one knows precisely when peaking will occur because much of the data
needed for an accurate forecast fall into one or more of the following categories:

1) Proprietary to companies,
2) State secrets in the major oil exporting countries, and/or
3) Politically/economically biased.

However, even large differences in estimated remaining world oil reserves will
not significantly change the date of world peaking, when viewed from the
perspective of mitigation. According to EIA, “(Our) results (related to oil peaking)
are remarkably insensitive to the assumption of alternative resource base
estimates. For example, adding 900 Bbbl (billion barrels) – more oil than had
been produced at the time the estimates were made – to the mean USGS
resource estimate in the two percent growth case only delays the estimated
production peak by 10 years. Similarly, subtracting 850 Bbbl in the same
scenario accelerates the estimated production peak by only 11 years.”

A number of forecasters have accepted OPEC reserves estimates at face value
in part because there is no independent source of verification. This acceptance
is troubling in light of the fact that past history raises significant questions about
the validity of OPEC reporting. In the words of the IEA

, “What is clear is that

revisions in official (Middle East and North Africa [MENA] reserves) data had little
to do with actual discovery of new reserves.

Total reserves in many MENA

countries hardly changed in the 1990s. Official reserves in Kuwait, for example,
were unchanged at 96.5 billion barrels (including its share of the Neutral Zone)
from 1991 to 2002, even though the country produced more than 8 billion barrels
and did not make any important new discoveries during the period. The case of
Saudi Arabia is even more striking, with proven reserves estimated at between
258 and 262 billion barrels in the past 15 years, a variation of less than 2 percent
(in spite of production of well over 100 billion barrels).”

III. The Era of Easy Oil

A number of influential people have recently remarked about the end of the era of
easy and/or low cost oil. While the definition of “easy oil” may vary, their views
reflect their belief that the world oil enterprise has entered a new, more difficult,

International Energy Agency,

World Energy Outlook 2005

, November 2005, page 132.

Wood, J.H., Long, G.R., and Morehouse, D.F., “World Conventional Oil Supply Expected to Peak

in 21

Century.” Offshore. April 2003.

http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2004/worldoilsupply/oilsupply04.ht
ml, or http://www.eia.doe.gov/neic/speeches/Caruso061305.pdf .

International Energy Agency,

World Energy Outlook 2005

, op. cit., p. 125.

However, while the lack of transparency about OPEC reserves is troubling, the fact that they

made no new discoveries does not rule out major additions to reserves through extensions and
revisions – which are common in many oil provinces.

more expensive phase. Table I provides a short list of important commentators
and their remarks. It is notable that three of the commentators are heads of
major oil production organizations, which have been reluctant to speak about a
major change in the past.

Table I.

Notable Recent Statements Relating to the End of the Era of

Easy and/or Cheap Oil.

Commentator

Statement

Reference

David O’Reilly,
Chairman, Chevron

“The time when we could

count on cheap oil... is

clearly ending.”

CERA Energy
Conference. February
2005.

Samuel Bodman, U.S.
Secretary of Energy

“The era of cheap and

abundant petroleum may

now be over.”

Christian Science Monitor.
July 8, 2006

Jeroen van der Veer,
Shell Chief Executive.

“Peak oil does exist for

easy-to-drill oil…”

Cummins, C., Williams, M.
Shell's Chief Pursues
Simple Goals. WALL
STREET JOURNAL.
January 17, 2006.

Alpha Oumar Konare,
African Union
Commission Chair.

"The era of cheap oil is

over."

Era of cheap oil is over.
Reuters. 02/04/2006

Viktor Khristenko,
Russian Energy
Minister

“... the era of cheap

hydrocarbons is over".

Hope, C. RUSSIA: 'ERA
OF CHEAP FUEL IS
OVER'. The Telegraph.
06/06/2006.

Guy Caruso,
Administrator.
U.S.EIA

“The era of low cost oil is

probably over.”

Holmes, J. Four Corners
Broadband Edition.
Australian Television
Program. 10 July 2006.

IV. Notable Recent Forecasts

To understand peaking forecasts, it is important to know the types of liquids each
forecaster has considered. This is not always obvious.

Over 95% of current world oil production is of relatively light oil, often referred to
as “conventional oil.” Unfortunately, the definition of conventional oil can vary
between forecasters. It always includes onshore and shallow offshore light oil; it
can also include light oil from deepwater offshore oil fields, natural gas liquids,
arctic oil, and/or refinery gains, etc.

Worldwide, unconventional oil is produced at relatively modest levels (modest
compared with the roughly 85 million barrels per day currently consumed).
Unconventional oil includes heavy oil / oil sands, gas-to-liquids (GTL), coal-to-
liquids (CTL), shale oil, biomass-to-liquids, etc. Heavy oil / oil sands is the
largest current contributor of unconventional oil but contributes less than 3% of
world liquid fuels supply; the contributions of GTL, CTL and biomass are
considerably less. In this report, we are interested in the broad range of notable
peak oil forecasts; finer scale differentiation between conventional and
unconventional oil in the various forecasts was beyond the scope of this effort.

The following tables list important peak oil forecasts by time period. Table II
shows forecasts for the next five years; Table III lists forecasts for the period
2011–2021; Table IV covers the years beyond 2021; and Table V lists some
recent concerns about peak oil by important people and organizations.

It is noteworthy that OPEC apparently denies that the peaking problem even
exists.

In the past, OPEC has been reluctant to discuss such matters. It has

been speculated that OPEC may believe that it is in their self-interest to deny the
peaking problem, lest it undercut their near-term market control. Their denial
cannot be physically based, because it is well established that production from
individual oil fields reaches a peak and then goes into decline and that regions
composed of many oil fields behave similarly.

CERA has been outspoken on the subject of peak oil and is often quoted in the
media. Recently, they extended their time frame for peak oil beyond 2030 (See
Section V).

Neil Chatterjee, OPEC needs clear demand signals for spare capacity, Mail & Guardian Online,

July 11, 2006; "We in OPEC do not subscribe to the peak-oil theory" -- quotation attributed to
OPEC acting secretary general Mohammed Barkindo,
http://www.mg.co.za/articlePage.aspx?articleid=276971&area=/breaking_news/breaking_news__
business/

For instance, Hirsch, R.L. The Shape of World Peak Oil Production. World Oil. October 2005.

Table II

Important Recent Peak Oil Forecasts Ranging to 2012 (5 years)

Pickens, T. Boone

(Oil & gas investor)………………………………………..………

2005

Deffeyes, K.

(Retired Princeton professor & retired Shell geologist)..

December 2005

Westervelt, E.T. et al.

(US Army Corps of Engineers)……………………….…

At hand

Bakhtiari, S.

(Iranian National Oil Co. planner)………………………………….……..

Now

Herrera, R.

(Retired BP geologist)………………………………………….

Close or past

Groppe, H.

(Oil / gas expert & businessman)……………………………..…….

Very soon

Wrobel, S.

(Investment fund manager)…………………………………………..….

By 2010

Bentley, R.

(University energy analyst)……………………………..…….....

Around 2010

Campbell, C.

(Retired oil company geologist; Texaco & Amoco)…………..….…….

2010

Skrebowski, C.

(Editor of Petroleum Review)………………...…..…….

2010 +/- a year

Meling, L.M.

(Statoil oil company geologist)……………..

A challenge around 2011

Boone Pickens Warns of Petroleum Production Peak. EV World. May 4, 2005.

http://www.defense-and-society.org/fcs/crisis_unfolding.htm .February 11, 2006

Energy Trends and Implications for US Army Installations.ERDC/CERL TN-05-1 Sept 2005.

King, B.W. No more business as usual. Energy Bulletin. August 11, 2006.

Bailey, A. HAS OIL PRODUCTION PEAKED? Petroleum News. May 4, 2006.

Henry Groppe. PEAK OIL: MYTH VS. REALITY. DENVER WORLD OIL CONFERENCE.

November 10, 2005.

Hotter, A. Global Oil Output to Peak in 2010 – Diapason. Schlumberger. May 16, 2006.

Bentley, R. The Case for Peak Oil. DOE/EPA Modeling the Oil Transition. April 21, 2006.

An Updated Depletion Model. THE ASSOCIATION FOR THE STUDY OF PEAK OIL AND

GAS “ASPO”NEWSLETTER No. 64 – APRIL 2006.

Skrebowski, C. Peak Oil - The emerging reality. ASPO-5 Conference. Pisa Italy. July 18,

2006.

Leif Magne Meling, Statoil ASA.. Oil Supply, Is the Peak Near? Centre for Global Energy

Studies. September 29-30, 2005.

Table III.

Important Recent Peak Oil Forecasts Ranging From 2012 - 2022.

Pang, X., et al.

(China University of Petroleum)………………….………..

Around 2012

Koppelaar, R.H.E.M.

(Dutch oil analyst)……………..…………..…….….

Around 2012

Volvo Trucks

…………………………………….…………………………

Within a decade

de Margerie, C.

(Oil company executive) ……………………………....

Within a decade

al Husseini, S.

(Retired Exec. VP of Saudi Aramco)…………………….…………….

2015

Merrill Lynch

(Brokerage / Financial)……………………….…….…………

Around 2015

West, J.R., PFC Energy

(Consultants)………..………………….…………..

2015-2020

Maxwell, C.T., Weeden & Co.

(Brokerage / Financial)…

Around 2020 or earlier

Wood Mackenzie

(Energy consulting)…………..……....……

Tight balance by 2020

Total

(French oil company)……………………………………………..………..

Around 2020

Pang, X, Meng, Q., Zhang, J., Natori, M. The Challenges Brought By The Shortage of Oil And

Gas In China And Their Countermeasures. ASPO IV International Workshop on Oil and Gas
Depletion. 19-20 May, 2005.

Koppelaar, R. World oil Production & Peaking Outlook. Stichting Peakoil-Nederland. 2005.

Volvo web site

ASPO NEWSLETTER No. 65 – MAY 2006

Motavalli, J. End of an Era. Cosmos. April 2006.

Mario Traviati, et al. Oil Supply Analysis: From “Upstream” Incapacity to Spare Capacity: It’s

Now a Better Story “Downstream.” Merrill Lynch. 12 October 2005.

West, R. Energy Insecurity. Testimony before the Senate Committee on Commerce, Science

& Transportation. September 21, 2005.

Maxwell, C.T. The Gathering Storm. Barron’s. November 14, 2004.

MacroEnergy Long Term Outlook – March 2006. Wood Mackenzie.

Bergin, T. Total Sees 2020 Oil Output Peak, Urges Less Demand. Reuters. June 7, 2006.

Table IV.

Important Recent Peak Oil Forecasts Ranging Beyond 2022.

UBS

(Brokerage / Financial)…………………………………………………..

Mid to late 2020s

CERA

(Energy consulting)………………………………………………………

Well after 2030

CERA

(Energy consulting)………………………….………

“Peak oil theory is garbage”

ExxonMobil

(Oil company)………………………………………….…..

No sign of peaking

Browne, J.

(BP CEO)…………………………………………….…..

Impossible to predict

OPEC

……………………………………………………………………..

Deny peak oil theory

Table V is noteworthy in that three important institutions (Royal Swedish
Academy of Sciences, IEA, and Raymond James) and two noted individuals
have expressed concerns about future world oil production and the coming of
peak oil.

V. Previously Noted World Oil Peaking Forecasts.

In our 2005 report on peak oil mitigation,

we presented a tabulation (Table II-1)

of various peak oil forecasts from respected sources. Table VI is reproduced
from our earlier report in order to note recent changes, shown in Table VII.

Oil Output set to peak, but no fuel shortage-UBS. REUTERS. 24 August 2006

Strahan, A. Global Petroleum Capacity to Rise 25 Percent by 2015. Bloomberg. August 8,

2006.

Morrison, M. Plenty of Oil—Just Drill Deeper. Business Week. SEPTEMBER 18, 2006;

quotation attributed to Robert W. Esser, a director of CERA

www.exxonmobil.com.

http://www.exxonmobil.com/Corporate/Files/Corporate/OpEd_peakoil.pdf

As Profit Rises, BP Chief Seeks To Allay Anger. Washington Post. July 27, 2006.

Neil Chatterjee, op. cit.

Hirsch, R.L., Bezdek, R., Wendling, R. Peaking of World Oil Production: Impacts, Mitigation &

Risk Management. DOE NETL. February 2005.

Table V.

Important Recent Statements of Concern.

Royal Swedish
Academy of
Sciences

“

Already 54 of the 65 most important oil-producing

countries have declining production and the rate of
discoveries of new reserves is less than a third of the
present rate of consumption.”

IEA

“By 2011 … global growth will marginally exceed
supply-side expansions.”

Raymond James

(Brokerage / Financial)

“

The peak in global oil production, which we believe is

approaching, will occur no matter what the economic
circumstance.”

Schlesinger, J. R.

(Former Secretary of
Energy, Secretary of
Defense, CIA Director, and
AEC Chairman)

“In the decades ahead, we do not know precisely
when, we shall reach a point, a plateau or peak,
beyond which we shall be unable further to increase
production of conventional oil worldwide. We need to
understand that problem now and to begin to prepare
for that transition.”

Greene, D.

(Oak Ridge National
Laboratory energy analyst)

“

Peaking of conventional oil production is almost

certain to occur soon enough to deserve immediate
and serious attention.”

Statements on Oil by the Energy Committee at the Royal Swedish Academy of Sciences.

October 14, 2005.

INTERNATIONAL ENERGY AGENCY - MEDIUM-TERM OIL MARKET REPORT. JULY

2006.

THE POLITICS OF OIL: IS HISTORY REPEATING ITSELF? Raymond James Insight. June

26, 2006.

STATEMENT OF JAMES SCHLESINGER BEFORE THE COMMITTEE ON FOREIGN

RELATIONS UNITED STATES SENATE. 16 NOVEMBER 2005

Greene, D, et al. Have we run out of oil yet? Oil peaking analysis from an optimist’s

perspective. Energy Policy 34 (2006).

Table VI. Past Projections of the Peaking of World Oil

Production

Projected Date

Source of Projection

Background & Reference

2006-2007

Bakhitari, A.M.S.

Iranian Oil Executive

2007-2009

Simmons, M.R.

Investment banker

After 2007

Skrebowski, C.

Petroleum journal Editor

Before 2009

Deffeyes, K.S.

Oil company geologist (ret.)

Before 2010

Goodstein, D.

Vice Provost, Cal Tech

Around 2010

Campbell, C.J.

Oil company geologist (ret.)

After 2010

World Energy Council

World Non-Government Org.

2010-2020

Laherrere, J.

Oil company geologist (ret.)

2016

EIA nominal case

DOE analysis/ information

After 2020

CERA

Energy

consultants

2025 or later

Shell

Major

oil

company

No visible peak

Lynch,

M.C.

Energy

economist

Bakhtiari, A.M.S. "World Oil Production Capacity Model Suggests Output Peak by 2006-07."

OGJ. April 26, 2004.

Simmons, M.R. ASPO Workshop. May 26, 2003.

Skrebowski, C. "Oil Field Mega Projects - 2004." Petroleum Review. January 2004.

Deffeyes, K.S. Hubbert’s Peak-The Impending World Oil Shortage. Princeton University Press.

2003.

Goodstein, D. Out of Gas – The End of the Age of Oil. W.W. Norton. 2004

Campbell, C.J. "Industry Urged to Watch for Regular Oil Production Peaks, Depletion Signals."

OGJ. July 14, 2003.

Drivers of the Energy Scene. World Energy Council. 2003.

Laherrere, J. Seminar Center of Energy Conversion. Zurich. May 7, 2003

DOE EIA. "Long Term World Oil Supply." April 18, 2000. One of many scenarios studied.

Jackson, P. et al. "Triple Witching Hour for Oil Arrives Early in 2004 – But, As Yet, No Real

Witches." CERA Alert. April 7, 2004.

Davis, G. "Meeting Future Energy Needs." The Bridge. National Academies Press. Summer

2003.

Lynch, M.C. "Petroleum Resources Pessimism Debunked in Hubbert Model and Hubbert

Modelers’ Assessment." Oil and Gas Journal, July 14, 2003.

Table VII. Peaking Year Forecast Changes from February 2005

to September 2006.

Forecast
as of 2005 Source of Forecast

September 2006 Update.

2006-2007

Bakhitari, A.M.S.

No significant change

2007-2009

Simmons, M.R.

Changed – Peaking is now

After 2007

Skrebowski,

Changed – 2010 + / - one year

Before 2009

Deffeyes, K.S.

Changed – It was Dec. 2005

Before 2010

Goodstein,

known

change

Around 2010

Campbell, C.J.

No known change

After 2010

World Energy Council

No known change

2010-2020

Laherrere,

Position

reaffirmed

2016

EIA nominal case

Changed – Peaking after 2030

After 2020

CERA

Changed – Peaking after 2030

2025 or later

Shell

known

change.

No visible peak

Lynch,

M.C.

Position

reaffirmed

Global oil output at a peak, ‘set to fall’ Gulf Times. 11 July, 2006.

“For some time, I have suspected that peak oil is probably here.” Simmons, M. Private

communication. August 30, 2006. also: CFA Society of St. Louis, May 24, 2006, Brentwood,
MO., slide 23, “World Should Assume We Are At Peak For Oil AND Gas”

Skrebowski, C. Peak Oil - The Emerging Reality. 5th ASPO Workshop. San Rossore, Italy.

June 18-19 2006.

Deffeyes, K.S. http://www.defense-and-society.org/fcs/crisis_unfolding.htm. February 11,

2006.

Laherrere, J. Private communication. September 11, 2006. Includes all liquids.

Morehouse, D. Private communication. June 1, 2006.

“Barring unforeseen events there is no reason to believe capacity couldn't meet demand well

after 2030, CERA researchers said.” Strahan, A. Global Petroleum Capacity to Rise 25 Percent
by 2015. Bloomberg. 2006-08-08

Lynch, M. Private communication. August 30, 2006. “That’s a good representation.” “My view

is definitely formed by a mix of resource economics theory and empirical evidence.”

Bakhitari and Simmons believe that world oil production may now be peaking.
Deffeyes believes that peaking occurred late last year, while Skrebowski’s view is
firmed to 2010 + / - one year.

One might ask how Pickens, Deffeyes, Bakhitari and Simmons can suggest a
current peak, when the world is not yet aware that one now exists. The answer is
that the phrase “oil peak” does not mean knife-edge sharp. Experience in
individual oil fields and large oil producing regions repeatedly demonstrates that
maximum oil production is usually characterized by a few year gentle rollover.
North American oil peaking displayed a relatively gentle peak around the year
1985, as shown in Figure 1.

We know of no region that has reached maximum

production in recent years and stayed on a plateau for an extended period of
time.

Figure 1. The peak of oil production in North America.

The EIA position on world oil peaking has become progressively more optimistic.
In the year 2000, EIA developed 12 scenarios for world oil production peaking
using three U.S. Geological Survey (USGS) estimates of the world conventional
oil resource base (Low, mean, and high probability) and four annual world oil

Hirsch, R.L. The Shape of World Peak Oil Production. World Oil. October 2005

The qualifier “in recent years” is important, because behaviors in the distant past may have

been controlled by political events, economic circumstances, or more primitive technology that
transitioned to improved technology, allowing for a production plateau. The term “plateau” in the
context of peak oil is not well defined. It is probably safe to assume oil production level to less
than 1% per year. CERA postulates an “undulating plateau” after world oil production reaches a
maximum. Jackson, P.M., Esser, R.W. Expansion Set To Continue – Global Liquids Productive
Capacity to 2015. CERA . August 2006.

1980 1982 1984 1986

1988 1990

14.4

14.6

14.8

15.0

15.2

15.4

15.6

Daily

Production

(MM b/d)

100%

98%

Percent of

Maximum

96%

94%

Peak in

1985

demand growth rates (0, 1, 2, and 3 percent per year).

In our 2005 study,

stated our belief that the most likely of the EIA scenarios was the one based on
the USGS mean ultimate world recoverable oil of 3,003 billion barrels coupled
with a 2% annual world oil demand escalation (EIA nominal case in Tables VI &
VII). The production profile in what we called the EIA “nominal” scenario was
similar to the relatively symmetric U.S. Lower 48 production profile before and
after the peak year of 1970, which represented actual experience in a very large,
geologically varied oil-producing region. The corresponding EIA scenario
indicated a world peak oil production in the year 2016.

In a subsequent study,

EIA reconsidered its earlier work and concluded the

following: “In any event, the world production peak for conventionally reservoired
crude is unlikely to be "right around the corner" as so many other estimators
have been predicting. Our analysis shows that it will be closer to the middle of
the 21st century than to its beginning.” Recently, EIA verified that it still does not
forecast oil peaking before 2030;

thus remaining among the most optimistic

about future world oil production.

CERA has become increasingly more optimistic about future world oil production:
“Barring unforeseen events, there is no reason to believe capacity couldn't meet
demand well after 2030, CERA researchers said.”

In their recent written

analysis, CERA was a bit less specific: “The much-discussed “peak oil” is not
imminent, nor is the start of the “undulating plateau.”

VI. The Recent IEA Warning

In their recently released World Energy Outlook (WE0), the International Energy
Agency (IEA) sounded a sharp warning with regard to future world oil
production:

“The energy picture has changed appreciably since the 2004 Outlook, the last
major update of the IEA's global energy projection. The realities of the energy
market have become harsher and the relative competitive position of fuels has
changed. Oil and gas prices this year have been between three and four times
higher than in 2002 and this is reflected in a new oil price assumption for the
projections. But world economic growth has remained robust, as the

DOE EIA. "Long Term World Oil Supply." April 18, 2000.

Hirsch, R.L., Bezdek, R., Wendling, R. Peaking of World Oil Production: Impacts, Mitigation &

Risk Management. DOE NETL. February 2005.

Wood, J. H., Long, G.R., Morehouse, D.F. Long-Term World Oil Supply Scenarios. DOE EIA.

Posted: August 18, 2004.

Morehouse, D. Private communication. June 1, 2006.

Strahan, A. Global Petroleum Capacity to Rise 25 Percent by 2015. Bloomberg. 2006-08-08.

Jackson, P.M., Esser, R.W. Expansion Set to Continue - Global Liquids Capacity to 2015.

CERA. August 2006.

The World Energy Outlook 2006 Maps Out a Cleaner, Cleverer and More Competitive Energy

Future. International Energy Agency. News Release - November 7, 2006.

recessionary effects of higher energy prices have been more than offset by other
factors.”

“‘WEO 2006 identifies under-investment in new energy supply as a real risk’, said
Mr. Mandil, (Claude Mandil, IEA Executive Director). To quench the world's thirst
for energy, the Reference Scenario projection calls for a cumulative investment in
energy-supply infrastructure of over $20 trillion in real terms over 2005-2030 -
substantially more than was previously estimated. It is far from certain that all this
investment will actually occur. There has been an apparent surge in oil and gas
investment in recent years, but it is, to a large extent, illusory. Drilling, material
and personnel costs in the industry have soared, so that in real terms investment
in 2005 was barely higher than that in 2000.”

In interviews associated with the WEO 2006 release, IEA executives further
affirmed the impending difficulties: "This energy future is not only unsustainable,
it is doomed to failure," because of, "underinvestment in basic energy
infrastructure," "...In short, we are on course for an energy system that will evolve
from crisis to crisis," according to Mandil.

“Mr. Birol, the IEA economist, said in an interview that he expects the oil
industry's production capacity will slightly outstrip demand through the end of this
decade ‘if all the projects see the light of day.’”

Another recent warning comes from the prestigious Aspen Institute:

“It is not a

question of what exists below the ground, but the adequacy of the investment
environment above ground and the progress made on demand reduction that will
lead to wise choices. As access to resources increasingly is taken out of the
control of market forces and placed under the control of governments and
government-controlled entities, the ability to supply energy markets increasingly
becomes a government decision rather than a market decision. Unfortunately,
government decisions often are swayed less by what is best for the market and
consumers than by what is in the best interests of individual nations or political
ideologies. As politics intrude more and more into future energy decision
making, the collective security of consumers and producers erodes and can fall
prey to political whims and disruptive policies based on non-energy goals. Bold
steps to alter course are required.”

IEA says demands on OPEC crude to increase 'substantially': IEA. Platts--7Nov2006

Bahree, B. Investment by Oil Industry Stalls. WSJ. November 8, 2006.

Johnston, J.B., Forum Chair. ENERGY MARKETS AND GLOBAL POLITICS. The Aspen

Institute. 2006.

VII. Summary and Concluding Remarks

It is especially noteworthy that a number of industry insiders have now expressed
the view that the era of easy, low-cost oil is past. This in itself heralds a
fundamental change in the world oil outlook.

Over the past year and a half, a number of individuals and organizations have
provided forecasts for when world conventional oil production might reach a
peak. Some forecasts use similar geological estimates, while others use very
different ones. The range of conventional oil peaking year forecasts extends
from last year (Deffeyes) to a denial that it will happen (OPEC); others have
affirmed or modified their previous positions. Some of the forecasters with the
greatest concerns believe that peak oil may happen sooner than they had
previously stated, while some of the optimists have revised their peaking
forecasts further into the future. It is clear that there is no consensus among the
forecasters, which is not surprising because of the use of different methodologies
and the fact that oil reserves estimates are open to considerable question.

Because of the large uncertainties, it is difficult to define an overriding geological
basis for accepting or rejecting any of these forecasts. Some commentators
suggest that self-interest may have impacted some of the forecasts; others speak
of over-optimism, over-pessimism, political pressure, lack of understanding of
petroleum geology, etc. Some forecasters explicitly discuss the issue of
underinvestment in exploration and production, which could lead to markedly
different future world oil production, while others do not. None of the forecasts
take explicit account of terrorism or resource nationalism, both of which are very
uncertain but could have profound impact.

The recent IEA and Aspen warnings about worldwide underinvestment in
upstream oil development is a matter of deep concern. Indeed, it is one thing to
estimate what might be available underground, but it is quite another for the
needed investment and skills to be brought to bear on a timely basis to overcome
existing oil field depletion as well as to provide the additional production growth
that the world demands.

The wide range of peak oil forecasts makes peak oil decision-making particularly
difficult. One option would be to await a consensus of peak oil forecasters, but
that is very unlikely in light of their strongly held divergent views. Another option
is to wait until the problem is obvious before taking action, particularly since there
seem to be so many other public policy problems demanding immediate
attention.

Resource nationalism refers to countries appropriating oil fields developed by institutions based

outside of their borders. Examples include Venezuela, Bolivia, Algeria, Ecuador, Russia, etc.

In the final analysis, peak oil presents the world with a risk management problem
of tremendous complexity and enormity. From our earlier report:

It is possible that peaking may not occur for several decades, but it
is also possible that peaking may occur in the near future. We are
thus faced with a daunting risk management problem:

•

On the one hand, mitigation initiated soon would be
premature if peaking is still several decades away.

•

On the other hand, if peaking is imminent, failure to
initiate mitigation quickly will have significant
economic and social costs to the U.S. and the world.

The two risks are asymmetric:

•

Mitigation actions initiated prematurely will be costly
and could result in a poor use of resources.

•

Late initiation of mitigation may result in severe
consequences.

Mitigation will require an intense effort over decades. This
inescapable conclusion is based on the time required to
replace vast numbers of liquid fuel consuming vehicles and
the time required to build a substantial number of substitute
fuel production facilities. Our scenarios analysis shows:

•

Waiting until world oil production peaks before
taking crash program action would leave the world
with a significant liquid fuel deficit for more than
two decades.

•

Initiating a mitigation crash program 10 years
before world oil peaking helps considerably but
still leaves a liquid fuels shortfall roughly a decade
after the time that oil would have peaked.

•

Initiating a mitigation crash program 20 years
before peaking appears to offer the possibility of
avoiding a world liquid fuels shortfall for the
forecast period.

Hirsch, R.L., Bezdek, R., Wendling, R. Peaking of World Oil Production: Impacts, Mitigation &

Risk Management. DOE NETL. February 2005.