FOSSIL FUEL DEPENDENCY - DO OIL RESERVES FORETELL BLEAK FUTURE?
by Alejandro Eggers Moreno

Gasoline prices have reached their highest mark ever in the United States -- just as oil giant Royal Dutch/Shell has slashed its petroleum reserve estimates by 20 percent, after a monumental accounting scandal. While soaring prices at the pump have the public worried about another 1970s-style oil crisis, waiting in line might ultimately be the least of our concerns. An increasing number of prominent petroleum geologists -- including many former oil company employees -- have warned that official estimates of available global oil reserves are dangerously exaggerated.

They may well be right. For energy companies such as Shell, proven oil and gas reserves are their primary indicator of economic health. They have every incentive to boost reserve estimates; the more oil they can claim, the more competitive and attractive to shareholders they appear. But private companies are not the only ones with an incentive to inflate estimates. In the mid 1980s, OPEC decided to factor in member states' reserves when determining their market share. Global oil reserves jumped overnight. Today, the more oil a country can claim -- the methods each uses to determine this are a closely guarded secret -- the more influence it has on the global energy scene.

As a result, say the geologists, there may be considerably less oil in the world than the oil-producing countries and energy companies claim, and global oil production could peak far sooner than expected -- some predict as early as 2010. Once that happens, getting at the remaining oil becomes increasingly difficult and expensive. For an economy still reliant on fossil fuels, the effects would be catastrophic. As the oil supply shrinks, essential petroleum-dependent products (that is, nearly everything in modern society, from transportation to electricity to basic foodstuffs) are rendered either unavailable or unaffordable. Eventually, as companies such as Shell employ even more complex and invasive drilling techniques, the energy required to extract a barrel of oil exceeds the amount it can generate, and oil ceases altogether to be an energy source.

Of course, all major players in the oil business -- private and public -- insist that there will be enough oil to last well through the 21st century. But given their incentive to inflate reserve totals, it would be irresponsible not to question their estimates. The official figures -- that is, those cited by oil companies to prove their product is secure -- are notoriously unreliable. For example, in 2002 the U.S. Geological Survey claimed that total U.S. oil production would eventually reach 362 billion barrels. This calculation far surpasses most independent estimates, which place the figure closer to 200 billion; furthermore, it would require new American discoveries to equal the total reserves of Kuwait. The USGS itself admits its figures are "based on nontechnical considerations that support domestic supply growth to the levels necessary to meet domestic demand levels. " In other words, it determines supply estimates not by how much oil is left, but by guessing how much people will ultimately want.

Compounding the problem, most governments and all major energy companies insist that an oil shortage -- and thus the point at which the world needs to find an alternative energy source -- will occur only when the final drop is pumped from the ground. It does not take a petroleum geologist to surmise that demand will outpace supply (resulting in a global energy crisis) long before the last bit of oil is gone.

The optimistic oil-reserve estimates also fail to consider the rising global energy demand, particularly among developing nations. China itself could render the figures obsolete: Chinese oil imports rose by 30 percent last year, according to China's Ministry of Commerce, and the country's energy demand is expected to grow significantly in the next 25 years. Despite the extra oil -- as well as millions of tons in increased domestic coal production -- China already has begun to suffer from an energy shortage, which the government expects to worsen in many east coast provinces. To put the size of China's energy problem in scale, in the last two years its electricity use has increased by an amount equal to the total power consumption of Brazil, according to Scott Roberts, chief representative in the Beijing office of Cambridge Energy Research Associates, a consulting firm based in Massachusetts.

The consequences of overestimating the global oil supply would be devastating. In the best-case scenario, industry would recover by turning to less efficient and more polluting fuels, accelerating the already noticeable effects of global warming. Worst case would be a total economic collapse, with today's rising gas prices in the United States and sporadic blackouts across China merely the mildest previews of what is to come.

Granted, it is quite possible that there will never be an oil shortage, that global reserves are healthy enough to last until well after a replacement energy source is discovered. But given that those responsible for measuring the supply have a vested interest in making it appear high, the accuracy of their estimates cannot be taken for granted. The future of oil may not be as bright as it seems, both to the energy industry at large and to anyone who relies on their computer, their car or their planet.