The always lively debate on when the world's oil output will peak has gained greater urgency in the past two years as consumption grows rapidly and prices soar. Peak oil. No two words in the global oil and gas industry carry so many weighty implications. Nor have any two words been the subject of so much public and private debate and consternation, and so many papers and books. One of the latest books, one with an alarmist title, albeit a very well-reasoned text, was for sale at the annual AAPG convention in April-A Thousand Barrels a Second: The Coming Oil Break Point and the Challenges Facing an Energy Dependent World. Author Peter Tertzakian is the chief economist for private-equity company ARC Financial Corp. in Calgary, and a former geophysicist with Chevron. In 2006, the world will consume 1,000 barrels per second-more commonly referred to as 85 million barrels per day. Recently the pace of oil-demand growth has quickened. In 1990, it was 67 million barrels per day. By 2002, that had risen to 77.9 million. But the recent three-year increase to 85 million a day today certainly captured the attention of energy observers. If, as they estimate, global oil demand rises 1.5% annually and production from current fields declines 5% per year, then by 2020, in theory, world demand may be 104 million barrels per day, but supply will be only 38 million. This means E&P companies will have to find an additional 66 million barrels of new daily supply in 15 years! Massachusetts-based energy analysis firm Cambridge Energy Research Associates has modeled that non-OPEC supplies will increase to 2010 based on known discoveries currently being developed. Washington-based analysis firm PFC Energy says that, after that, "OPEC will struggle to fill the differential between non-OPEC supply and global demand as early as 2015-2020." ARC's Tertzakian says companies must recycle today's big profits (derived from producing cheap oil they found years ago), to find more expensive new barrels. But those investments will increasingly be made in much riskier-and hard-to-access-parts of the world. Then too, the international oil companies (IOCs) are facing competition from the newly assertive national oil companies (NOCs) for access to those reserves. Experts at ExxonMobil, Chevron, the U.S. Geological Survey (USGS) and OPEC think the world's recoverable oil endowment (undiscovered conventional resources) is 3- to 3.2 trillion barrels, with about a third of that produced so far. As it is, more than 70% of the remaining oil resources and proved reserves are owned by the NOCs and as such, are not likely open to IOC involvement as they were in the past 50 years. The net effect will be higher prices for longer. "If the world's oil-supply chain is like a hospital patient, price would be like its blood pressure," he writes. "The historical $20 a barrel for light, sweet crude oil is gone. A sustainable trend toward moderating oil prices is not forthcoming until the pressure build-up triggers the next break point and the rebalancing of our entire energy system." Peak oil makes for lively discussion in CNN documentaries and oil conferences, and frightening headlines in business, economics and foreign-policy magazines. There have been some wild disaster scenarios. One author postulates that if affordable oil-really, in this case, gasoline and diesel-were to become scarce, rationed and very expensive, everybody living in Arizona would have to relocate to California, because trucks could no longer bring food to the arid state, and there would not be enough power for air conditioning and irrigation systems. Numerous "beyond oil" study groups and websites have sprung up that advocate more conservation, increased research on fuel alternatives, and immediate lifestyle changes-such as only eating food grown within 25 miles of home-to reduce the call on petroleum. The trick will be for consumers and governments to act in a timely manner, and to do so at a pace somewhere between the extremes of complacent dawdling and panic. Peak or plateau? Regardless of when world oil production peaks, the real question is, how steep is the curve going to be on the down side of the slope? Is it a rapid drop-off, or more likely to be a technology-supported production plateau that lasts long enough to give the world time to transition to other fuels? "I prefer to talk about plateaus, not peaks," says Tom Ahlbrandt. "There is nothing symmetrical about a production profile. You get an asymmetrical curve as you work to maintain reserves and slow the decline." The geologist, with 22 years at the USGS, has written more than 300 papers on oil supply and demand, some at the request of OPEC. (At press time, he had just left government service to join a private E&P firm in Denver.) He also wrote a chapter for the forthcoming book, Oil in the 21st Century, to be published in September by OPEC. Indeed, technology improvements and production history tend to enable better oilfield development, smooth out the declines and increase the recoverable reserves numbers. ARC's Tertzakian provides a dramatic example. He was on Chevron's team that characterized the reservoir at Hibernia Field offshore Canada in the 1980s. Chevron discovered Hibernia, one of the larger oil finds of the past 30 years, in 1976 and began producing from it in 1997. Early on, Chevron thought the field held about 450 million barrels of oil, but today it appears it may hold closer to a billion barrels-twice as much. That reserve growth is the result of a production history that yields much greater understanding of the subsurface, and improved technology that allows the company to get more of the oil out. Does this concept of additional reserves apply on a worldwide basis? Turns out it does, according to the USGS' World Energy Project, which since 1981 has studied the world potential for oil, natural gas and gas liquids, country by country, basin by basin. Its data are the most frequently cited by government agencies, think tanks and companies, and even by OPEC itself. The USGS World Petroleum Assessment 2000, led by Ahlbrandt and conducted by 41 experts from 1995 to 2000, studied some 128 onshore and offshore geologic provinces in the world. The assessed regions account for 95% of the world's historic production and included established and prospective provinces. USGS found that since 1994, there has been a 20% increase in undiscovered, technically recoverable, conventional oil outside the U.S., to reach 649 billion barrels of oil. Since the formal assessment, the USGS has added data about other regions, most recently Afghanistan, Mexico's Burgos Basin, Cuba and the Mackenzie Delta in far northern Canada. Ahlbrandt notes that over time, the application of new technology and the knowledge gained from production history have always led the industry to report additional oil reserves in known fields, apart from the reserves found by new drilling. Further study, in a paper published by the USGS in the August 2005 AAPG Bulletin, showed that, indeed, reserves added in older fields from 1996 to 2003 were triple the amount of undiscovered resource additions from new drilling. "There was more reserve growth-infill drilling, and secondary and tertiary recovery- than we expected and fewer new-field discoveries. But the average of the two is pretty much on track with the 2000 assessment. We made a 30-year forecast, and during that seven-year period (1996-2003), we added about 30% of our mean estimate." So while experts point out that the number and size of new finds is diminishing, the reserve adds in known fields could help smooth out the decline curve-the plateau of which Ahlbrandt speaks. "Reserve growth is more cost-effective by expanding and infilling existing fields rather than the old wildcat exploration," he says. "It would be a catastrophic mistake not to include reserve growth. Some 85% of all the reserve additions in the U.S. in the last 30 years came from reserve growth and only 15% from new-field discoveries." Occidental Petroleum's 2005 results show this concept. At year-end 2005, it reported 2.66 billion barrels of equivalent proved reserves. It said 37% of the proved-reserve additions came from improved recovery on existing fields, while field extensions and new discoveries added 32%, revisions to prior estimates reduced the number 6%, and acquisitions added 37%. Is Ahlbrandt an optimist or pessimist in the great peak-oil debate? "I would say I'm a moderate. I don't get great comfort from knowing there is 3 trillion barrels of oil endowment in the world, and we have already produced more than one third of that. It is sobering to me when I know demand from China and India is only going to increase." Alternatives Many fuel alternatives are being proposed now that oil is above $50 per barrel. All may work-eventually-but in the near term they pose difficult challenges. For example, the land mass required to displace 1 million barrels of oil per day with an energy equivalent of switch grass would be 25 million acres-that's 39,000 square miles-according to John Deutch, who was undersecretary of defense for the Clinton administration and undersecretary of the energy department for Carter. Today he is a chemistry professor at MIT. Writing in The Wall Street Journal in May, Deutch said he would be astonished if the cost of ethanol or other biomass-derived fuels proves to be less than $40 per barrel. He noted that it takes two-thirds of a gallon of oil to make one gallon equivalent of ethanol from corn. Thus, one gallon of ethanol displaces one-third of a gallon of oil or less, he said. Some experts predict that the whole peak debate is moot because the world economy will transition away from crude-oil-based energy long before running out of physical supply, simply because the price will become prohibitive, and environmental considerations will lead the West, at least, to use other fuels. They believe that, ironically, the near-term advances in technology that will unlock more energy from oil sands and oil shales, and turn stranded natural gas or coal into liquids, may be displaced by other technologies-for hydrogen fuel cells, solar and wind power, nuclear, energy from waves, even methane hydrates under the seas.

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