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A Slippery Peak - The New Oil Equation

New discoveries have disproved the idea that the world is running out of oil


The idea of peak oil caught the world’s imagination a decade ago. Peak oil, the point in time when the maximum rate of global oil extraction is reached, after which the rate of production would get into terminal decline, was supposed to be sometime in 2007, 2008 or 2009 — depending on who you were talking to.

The most important fallout of the idea that the world was running out of oil was large investments in companies and technologies trying to make alternative energy sources viable. Oil was all but written off as a vestige of the last century.

Much of this has changed. Spectacular discoveries of conventional oil and gas in Brazil, Angola and Australia, and a huge growth in unconventional oil and gas have changed the equation on reserves. New studies released in the last two months reflect this.

Scottish oil research firm Wood Mackenzie, in a report, has valued the upstream (oil exploration and production) business globally at approximately $3.2 trillion, not including exploration acreage or assets owned by national oil companies and governments.

Iain Brown, Wood Mackenzie’s upstream manager, says the discussion has changed and expectations are that oil prices will stay high (over $70 a barrel). But Wood Mackenzie’s long-term oil supply forecast shows a slow, but steady shift towards heavier grades. This includes a major contribution from oil sands. Technology has also played a big role in adding to the reserves. This gives hope to energy-starved India, where exploration has been limited to a few basins. Unconventional gas, which made waves in the United States, is gaining in prominence in the rest of the world too.

Among those who still subscribe to the peak oil theory are geologist Colin Campbell and Jean Laherrère, a well-known petroleum engineer. In their book, The End of Cheap Oil, published in 1998, their main assertions were that no large oil provinces are left to be found and technology will not significantly increase the amount of oil ultimately recovered. Though Campbell’s prediction was off the mark, it is true that its extraction faces bigger challenges. Shale gas production is caught in litigation and the risks of taking oil out from deeper waters and unspoiled areas like the Arctic are yet to be addressed satisfactorily.