Have We Reached Peak Oil?

 |  Includes: DBO, OIL
by: Delta Lima
The Energy Information Administration [“EIA”] is the “statistical agency of the U.S. Department of Energy and as such is the Nation’s premier source of unbiased energy data, analysis and forecasting”[1]. As mentioned in its webpage, it aims to “provide policy-neutral data, forecasts, and analyses to promote sound policy making, efficient markets, and public understanding regarding energy and its interaction with the economy and the environment”.

In fact, should there be an imminent decline in global oil production, as feared by a growing number of energy experts, the EIA is the one responsible for warning the U.S. government about it.

Let’s not forget that a 2005 report[2] commissioned by the US Department of Energy (the “Hirsch Report”) concluded that the world would need at least 20 years to prepare for Peak Oil. Otherwise, “the economic, social, and political costs will be unprecedented”[3].
Publicly, the EIA argues that Peak Oil is “decades away”. In one presentation they even gave the date of 2044 for conventional Peak Oil[4]. An assumption many will find optimistic at best. Indeed, according to the US Joint Forces Command, “By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD… The implications for future conflict are ominous...”[5]
Stephen Harvey, the Director of the Oil and Gas Office at EIA, who supervises the Petroleum Division and the Reserves & Production Division kindly accepted to read my degree’s dissertation (How Peak Oil will Affect international Relations[6]) and give his feedbacks. In his email answer (that was not off the record), he declared that:
“There are many compelling arguments regarding the increased difficulty in reaching oil reserves which may well result in a future view of historical production that looks sort of like a bell curve. And, it is quite plausible that the peak of that curve is around now”.
While some people may find this sentence anecdotal, it is a remarkable statement from a top EIA official; an agency which is one of the strongest deniers of Peak Oil, well at least publicly. At this point, one can think of many questions.
What does “quite plausible” mean? Does it mean a 10% chance that we are facing Peak Oil now? Or does it mean a 50% chance? a 90% chance?
Does this statement represent only a personal opinion (from perhaps one of the best informed energy experts) or does it represent a broader shift in the EIA’s view on Peak Oil?

The fact that Mr. Harvey forwarded his email to Stephen Durbin (Director of the Office of Resource Management, EIA) may indicate that this is at least not a private opinion.
Why would the EIA publicly say that Peak Oil is “decades way” while one of its most senior officials argues it may well be happening now?
This statement from David Fridley, a scientist from the Lawrence Berkeley National Laboratory (US Department of Energy) gives a possible explanation:
“(Steven Chu, US Secretary of Energy) was my boss," Fridley says. "He knows all about peak oil, but he can't talk about it. If the government announced that peak oil was threatening our economy, Wall Street would crash. He just can't say anything about it."[7]
However, in his email Mr. Harvey seems to believe that somehow, we will mitigate the consequences of Peak Oil:
“I do think you back into a bit of a problem, though. In both the assessment of peak oil and the assessment of the response by states to a peak oil situation, you constrain your analysis by not considering the important roles of economic responses and technological development.”
My assessment relies on the “Hirsch Report” which was, as previously mentioned, commissioned by the US Department of Energy. Nevertheless, the optimistic view of Mr. Harvey may sound odd to many followers of the Peak Oil debate.

In fact, Peak Oil deniers, the “optimists” such as Exxon Mobil, Saudi-Arabia or CERA deny any problem regarding oil simply because they believe that oil production will continue to rise until at least 2030. While you may doubt that oil production could rise until that date, at least their argument is coherent: No Peak Oil = No crisis.
But believing that Peak Oil = No Crisis as Mr. Harvey does seems to me, very intriguing. In fact, I wonder on what grounds, if any, this belief relies on.
One can see a parallel here with what happened with the financial crisis and the failure of regulative authorities at that time. The same seems to be happening now in the energy sector: over-confidence rules.
To quote Dr. Robert Hirsch:
“The problem is that it takes a very long time to build the machinery that is necessary to exploit oil shale, oil sands, coal-to-liquids or heavy oil. In our 2005 analysis we looked at a worldwide crash program to bring these things into being as fast as possible. We made a number of aggressive assumptions, because a crash program is different from business as usual.
But the problem is that the magnitude of oil production loss each year will be so large and the time required to implement these alternatives is so long that the problem runs away from you if we wait too long. And we have waited too long to seriously start. Eventually, these options and energy efficiency will catch up. It is not as if the world is going to die. But right now, we are looking at a global recession that deepens each year for more than a decade because we are not prepared.”[8]