Supply and Debate

Daniel Yergin muses that oil, celebrating its 150th birthday this year, has never been in better shape ("It’s Still the One," September/October 2009). He argues that the world’s endowment of oil is larger than ever, despite a century and a half of constant use and a world consumption of more than 85 million barrels daily.

How terrific the world’s outlook would be if Yergin’s argument had even a touch of reality! Sadly, however, if one ignores opinion and simply adheres to well-documented facts, it quickly becomes clear that his assertions are utterly without substance.

Data from the International Energy Agency (IEA) and the U.S. Energy Department show that the global flow of crude oil peaked in 2005 and is now sliding steadily. The world will never run out of oil altogether, but oil’s flow is in decline. There might still be ample reserves left in the ground when production falls to half of today’s use. But these remaining reserves are either very low-quality heavy oil, which is difficult to process, or tainted with toxic elements that make them hard to refine into usable petroleum products.

Oil has been a miracle resource for ages, but it has never been well understood. For more than a century, myths about oil kept the real facts buried in a fog of bad information. Until the world’s oil producers allow third-party audits of the flow rates of the world’s largest oil fields, which they have so far been reluctant to do, it is impossible to know just how dire a situation we are in. I believe that such an audit would prove peak oil, but either way it is certainly irresponsible to make optimistic projections without hard data.

Matthew R. Simmons

Chairman

Simmons and Co.

Houston, Texas

As Daniel Yergin suggests, there is indeed a "new world of oil." But instead of describing the landscape in detail, he lays out a smoke screen that lulls his readers into a false sense of security.

Yergin’s company, ihs Cambridge Energy Research Associates, as well as the iea and my own group, Global Energy Systems (GES), have analyzed the world’s giant oil fields, and all have drawn approximately the same conclusion: Those fields that provide today’s production will, in 20 years, have lost production equivalent to five times the current production of Saudi Arabia. This oil is required for economic growth over this period. Even if Yergin’s cited oil resource base were to prove correct, ges has shown that this base cannot replace lost production fast enough. The world has reached the oil era’s maximum production capacity: peak oil.

It is true that the future energy agenda will be set by China. In collaboration with China University of Petroleum, ges has had the opportunity to study China’s future oil production in detail. China was self-sufficient in production until the mid-1990s but now produces only half of its needs. Today, if China’s consumption increases 10 percent, it will mean a 20 percent increase in the country’s need for oil imports. Will the world’s oil production be sufficient for all?

There is a very strong connection between access to oil and political, economic, and military strength. Of the world’s four centers of power, three — China, the European Union, and the United States — are heavily dependent on imported oil. Only Russia is self-sufficient in supply. This, combined with China’s ever-expanding energy needs, will provide the primary sources of conflict in Yergin’s "new world of oil." It is surprising that he did not choose to illuminate this fact for his readers.

Kjell Aleklett

Professor of Physics

Global Energy Systems Group

Uppsala University

Uppsala, Sweden

Daniel Yergin replies:

The question of the future of oil supplies is a very important one, and discussion and different perspectives are welcome and valuable. The view on future supplies expressed in my article is based on analyses by IHS Cambridge Energy Research Associates, drawing on the data collected by our parent company, IHS, which has the largest and most complete databases on the world’s oil fields, including reserves and production history. We draw on these data for our recent analysis of more than 800 major oil fields.

Those data are widely used. In fact, both the U.S. Energy Information Administration and the IEA studies that Matthew Simmons refers to make significant use of them. The IEA has specifically acknowledged its reliance on a subset of these databases: "Our analysis of oil supply is based on a vast amount of field by field data," its latest World Energy Outlook states. "The primary source of this was IHS Energy, without whose assistance we would not have been able to carry out this work." We will be using the data in a new analysis of the future of the world’s oil supply, which we will make available to the readers of Foreign Policy.

Kjell Aleklett’s comments about the "four centers of power" is an interesting way of looking at things, though oil trade also should be seen within the larger global network of trade and finance. He does suggest that my article is unaware of the growth of Chinese demand. I find this puzzling, as I write: "But now, the growth is in China, India, other emerging markets, and the Middle East. Between 2000 and 2007 … [almost] 85 percent of that growth [in world oil demand] was in emerging markets." As he does observe, China now imports more than half of its oil, and that share will increase. But one thing that he does not address is why China’s domestic oil production has increased 10 percent since 2004.