Energy leaders search for crude solutions

Relying on reserves
After Katrina knocked out as much as 10 percent of U.S. oil and gas production, it took an emergency withdrawal of 60 million barrels from global strategic reserves to head off serious shortages.

OPEC countries, meanwhile, have been pumping as fast as they can. With the possible exception of Saudi Arabia, there is little or no spare capacity left among oil exporters. Despite pledges by the Saudis to keep the oil market adequately supplied, the relentless growth in demand has been consuming every new barrel of oil put on the market.

Predictions of a peak in world oil production aren’t new. One of the earliest came more than five decades ago, when a Shell oil geophysicist, Dr. M. King Hubbert, predicted that U.S. oil production would top out in 1970. Though widely dismissed by the oil industry, his forecast proved to be dead on. Despite billions of investment in exploration and production in the Gulf of Mexico and Alaska since that year, U.S. output continues its steady decline.

More recently, Deffeyes, who worked with Hubbert early in his career, has used the same mathematical analysis to project the timing of the peak in world oil production. His prediction: Oil output will max out later this year.

But some analysts and industry executives note that dire predictions of coming oil shortages have been wrong before, and the latest round is no different. One of them is  Daniel Yergin, chairman of Cambridge Energy Research Associates and author of a Pulitzer-prize winning book on the history of the oil industry.

‘This is now the fifth time when we’ve run out of oil.’ — Daniel Yergin Cambridge Energy Research

Running out of oil ... again
“This is now the fifth time when we’ve run out of oil,” he said. “The thinking began in the 1880s that we were running out of oil. So we’ve gone though these episodes before and it’s very similar languages. The US Geological Survey in the 1920s said the U.S. was going to run out of oil in nine years and three months.”

Yergin believes that recent investment — spurred by higher oil prices — will soon bring enough production online to more than meet the growth in global demand. A recent report by his firm, adding up the expected new production from projects already underway, forecasts a rise in global oil production of nearly 20 percent from current levels by 2010. If that forecast proves accurate, the flood of new oil could push global supplies as much as 6 to 7.5 million barrels per day higher than demand, sending prices sharply lower, according to the report.

Aside from new investment, technological advances are also helping to boost production from existing fields. So-called “3D seismic” analysis of underground rock formations has reduced the guesswork involved in finding oil, along with the number of costly dry holes, allowing oil companies to invest their capital more efficiently.

Advances in drilling techniques — including sensors placed on drill bits that send information back to the surface in real time — are allowing oil producers to extract pockets of oil that would otherwise be out of reach. Most oil companies are only able to recovery 60 to 70 percent of the oil in a given reservoir, according to Gary Adams, Global Upstream Leader at IBM Business Consulting Services.

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