$7 a gallon?

by Michael G. Livingston

Here is a riddle for you: What do these items have in common? (The headlines are all from The New York Times.)

• “Forecast of Rising Oil Demand Challenges Tired Saudi Fields” (Feb. 24, 2004).

• Amory Lovins, the guru of renewable energy, gets $20,000 a day as a consultant to Shell Oil Company (Feb. 28, 2004).

• Ford Motor Company is introducing three hybrid cars, two by the 2007 model year (April 8, 2004).

• “With Supply Tight, Gas Prices are Seen as Rising Even Higher” (March 18, 2004).

• Royal Dutch Shell lowered its estimates of its worldwide reserves by 20% earlier this year.

• “Oman’s Oil Yield Long in Decline, Shell Data Show” (April 8, 2004).

• And finally, the invasion and occupation of Iraq by the U.S.

If you said oil, you are not correct. If you said the looming worldwide decline in oil production and supplies, you are indeed correct.

The point at which available oil starts to decline worldwide is known as Hubbert’s Peak, after the geophysicist M. King Hubbert, who first predicted the peak in 1949 for U.S. oil fields. His prediction—based on rates of discoveries, known reserves, and characteristics of oil field production—was that U.S. oil production would peak between 1966 and 1972. The actual U.S. peak occurred in 1970.

A number of refinements have been made in Hubbert’s techniques, and fairly accurate estimates have been made for a number of countries, estimates confirmed when those countries peaked around the predicted time. The world Hubbert’s Peak is estimated to occur sometime between 2006 and 2015. Ford will have their hybrid cars ready for market just in time.

The global capitalist economy runs on oil, and the impending shortages have driven oil-savvy politicians (think oilman George W. Bush and Halliburton CEO Dick Cheney) to new heights of mendacity and aggression.

The largest reserves are all in the Middle East. The Hubbert’s Peak for the Middle East is 2009, with the peak for Saudi Arabia estimated to be 2016. By the way, the only exception to the Middle East’s holding the largest reserves is Venezuela, which also has very large reserves. This explains a lot about U.S. efforts to overthrow President Chavez.

The invasion and occupation of Iraq is a classic resource war—a war fought against the Iraqi people by the U.S. for control of their oil. Oil has for the last 100 years been the most important commodity and energy source in the capitalist economy. With the proximate declining supply, its importance is multiplied 10 fold.

Hubbert’s Peak may occur sooner rather than later. The estimated range (2006-2015) is based on the best available data. These data are most likely exaggerated. In 1986 and 1987, most OPEC countries revised upward their estimated oil reserves, increasing their estimates in some cases by substantial amounts.

Oil companies also have good reason to inflate their estimated reserves; the reserve oil is one of their main assets. This year Shell had to revise their estimated reserves downward by 20 percent.

The Hubbert’s Peak for Oman, to take another example, was estimated to be 2005. But recently released data from Shell Oil show that the fields in Oman actually reached their Hubbert’s Peak in 1997 (The New York Times, April 8, 2004). The Saudi fields, containing the largest known reserves in the world, are also showing signs of declining productivity, hence the adjective “tired” (The New York Times, Feb. 2, 2004).

The major corporations dependent upon oil are not going to “go gently into that good night,” however. Hence their willingness to pay Amory Lovins $20,000 a day as a consultant (The New York Times, Feb. 28, 2004). Lovins is the author of “Soft Energy Paths,” still a must read for serious environmentalists. It seems that the oil companies will be investing in renewable energy before long.

In introducing the Ford hybrids (cars that use both gas and electricity to run), William Clay Ford Jr., the chairman and CEO of Ford Motor Corporation, said, “the importance of fuel economy will only increase as we go forward” (The New York Times, April 8, 2004). Clearly Ford, who has a reputation as an environmentalist, is no fool either. He can recognize a Hubbert’s Peak when he sees one.

Consumers are worried about climbing prices, hence the headlines (The New York Times, March 18, 2004). But some oil industry experts discount the proximity of Hubbert’s Peak. Daniel Yergin is one of them.

Yergin wrote “The Prize: The Epic Quest for Oil, Money, and Power” (New York: Simon & Schuster, 1991), still the best history of the oil industry. In an op-ed piece in The New York Times (April 4, 2004) he tries to reassure readers that undiscovered oil fields and new technology will save us. Yergin mentions a number of recent books about the estimated Hubbert’s Peak but brushes over their analysis. He confidently asserts that we do not have to worry about $7 a gallon prices at the pump.

I’m relieved. Aren’t you?