The Future Of Oil Prices

Cheap oil has helped fuel the economic boom of the 1990s. But petroleum prices will jump drastically in the near future, as the world starts to feel the pinch of tightening hydrocarbon supplies, according to several forecasts.

Some see the shock coming in only a few years, while others put it off for more than 2 decades. Nonetheless, these pessimistic predictions agree that oil production will soon peak and then start sliding downward, even as demand for oil continues to climb.

says Colin J. Campbell, a former exploration geologist now doing studies for Petroconsultants in Geneva.

His analysis calls for production to peak in less than a decade. "The implications of this on industry, world politics, and economics seems to me to be enormous," he said this week at the annual meeting of the Geological Society of America in Toronto.

Campbell and his colleague at Petroconsultants Jean H. Laherrère reached their conclusion by estimating the remaining underground reserves of so-called conventional petroleum -- oil that is relatively easy to extract. Such oil accounts for 95 percent of the 800 billion barrels of oil that the world has burned thus far, says Campbell.

Going country by country, Campbell and Laherrère started with published tallies of oil deposits and made adjustments in cases where industry data indicates that nations had inflated their figures. Extrapolating from these numbers and past oil-discovery rates, they estimate that roughly 1 trillion barrels of oil remain in known and undiscovered fields.

Production will peak, they hypothesize, when the quantity of oil already burned equals the amount yet to be extracted. They expect that point to come within a decade but project oil prices to jump even sooner. The economic impact will occur when nations in the Organization of Petroleum Exporting Countries gain control of the market after production begins to drop outside the Middle East.

When worldwide production starts falling, nations could tap into nonconventional sources of oil, such as heavy oil, tar, and hydrocarbons locked in shales. But these will cost more to extract and process, say the researchers.

Numbers only slightly more optimistic appeared in a March report by the International Energy Agency in Paris, which estimates there are 1.5 trillion barrels of conventional oil in reserves. The agency predicted that production would peak before 2015, so by 2020, demand will exceed supply by 17 million barrels a day.

At this week's meeting, John D. Edwards of the University of Colorado at Boulder estimated that 2 trillion barrels of oil exist in known and undiscovered fields. Though he pushes the production peak back to 2020, his result "should urge us now to consider replacement energies."

Some energy analysts, however, dispute such worrisome forecasts. Thomas S. Ahlbrandof the U.S. Geological Survey in Denver, who leads an ongoing federal effort to estimate global reserves, finds hope in new technologies that allow companies to pursue oil in the deep sea and other areas previously unexamined. "Since 1990, the area available for exploration has doubled in the world."

Advances are also helping companies after they locate oil. Three-dimensional seismic imaging has improved the mapping of fields, and whereas engineers once bored only vertically through Earth's crust, they now can steer their drilling, even horizontally.

In its 1998 International Energy Outlook, the U.S. Energy Information Administration concluded that "technologies continue to evolve that significantly enhance both exploration and production capabilities." It does not forecast production to peak during the time frame of its analysis, which runs to 2020.

Economist Morris Adelman of the Massachusetts Institute of Technology challenges the practice of estimating oil reserves. "Nobody knows how much hydrocarbon exists or what percentage of that will be recoverable," he says.

Judging from the histories of other geologic commodities, Adelman sees reasons to expect an increasing petroleum supply. "The tendency to deplete [a resource] is counteracted by increases in knowledge," he says.

By R. Monastersky