The Next Crisis: Peak Oil  

Forbes has an opinion piece by Jeremy Leggett on peak oil - The Next Crisis: Peak Oil.

“The next five years will see us face another crunch--the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well… Our message to government and businesses is clear: act. Don't let the oil crunch catch us out in the way that the credit crunch did.”

So wrote the CEOs and Chairmen of the companies involved in the U.K. Industry Taskforce on Peak Oil and Energy--Richard Branson of Virgin, Ian Marchant of Scottish and Southern, Brain Souter of Stagecoach, Phillip Dilley of Arup and I--in the forward of our second annual report, released on Feb. 10.

In the report, we produce data that suggests a peak of global oil production at less than 95 million barrels a day, up from some 85 million now, and we summarize fears that could result in a peak of less than 92 million, plus a steep fall beyond the peak, all at a time when demand is rising well in excess of 100 million barrels a day. The data is based on research conducted by consultancy Arup into current and projected oil production levels, extraction costs, exploration projects that are underway or in the pipeline and growth projections for developed and developing nations.

This is a loud blast of the whistle from a fairly broad group of companies. Neither are we alone on this side of the “premature peak oil” debate. The CEOs of oil companies Total and Petrobras are on record as saying the world will never produce more than 89 million barrels a day. The IEA has warned of an oil supply shock within five years and on Thursday raised its oil demand forecast for 2010 to 86.5 million barrels a day.

Finding oil and gas to replace the world's fast dwindling reserves is increasingly risky as rigs probe areas once seen as too difficult or too dangerous, and costs are rocketing, which could imperil future supply.

The cost of discovering each new barrel of oil and gas has risen three-fold over the last decade as technology has pushed the frontiers of exploration into ever more remote areas.

As old fields run dry, oil companies are drilling wells in some of the most inhospitable regions, where political, physical, geological, geographical, technical and contractual risks are high, and they have had remarkable success.

Despite escalating challenges, the annual rate of discovery of new fields has remained remarkably constant at 15-20 billion barrels, more than enough to compensate for the loss of existing reserves that are declining at between 5 and 15 percent a year.

But the cost of this success is staggering, and unless consumers pay more for oil in future, some analysts think we could face an energy supply crunch within a few years.

"The age of cheap oil has gone and it is not going to come back," said Paul Stevens, senior research fellow at the Royal Institute of International Affairs at Chatham House in London. "The world is not going to run out of oil tomorrow, but it is more and more expensive to find and will continue to be so," he said. "The worry is that investment may be squeezed as risks rise, and that could bring us to a looming supply crunch."