Crude Oil:

Uncertainty about Future Oil Supply Makes It Important to Develop a Strategy for Addressing a Peak and Decline in Oil Production

GAO-07-283: Published: Feb 28, 2007. Publicly Released: Mar 29, 2007.

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The U.S. economy depends heavily on oil, particularly in the transportation sector. World oil production has been running at near capacity to meet demand, pushing prices upward. Concerns about meeting increasing demand with finite resources have renewed interest in an old question: How long can the oil supply expand before reaching a maximum level of production--a peak--from which it can only decline? GAO (1) examined when oil production could peak, (2) assessed the potential for transportation technologies to mitigate the consequences of a peak in oil production, and (3) examined federal agency efforts that could reduce uncertainty about the timing of a peak or mitigate the consequences. To address these objectives, GAO reviewed studies, convened an expert panel, and consulted agency officials.

Most studies estimate that oil production will peak sometime between now and 2040. This range of estimates is wide because the timing of the peak depends on multiple, uncertain factors that will help determine how quickly the oil remaining in the ground is used, including the amount of oil still in the ground; how much of that oil can ultimately be produced given technological, cost, and environmental challenges as well as potentially unfavorable political and investment conditions in some countries where oil is located; and future global demand for oil. Demand for oil will, in turn, be influenced by global economic growth and may be affected by government policies on the environment and climate change and consumer choices about conservation. In the United States, alternative fuels and transportation technologies face challenges that could impede their ability to mitigate the consequences of a peak and decline in oil production, unless sufficient time and effort are brought to bear. For example, although corn ethanol production is technically feasible, it is more expensive to produce than gasoline and will require costly investments in infrastructure, such as pipelines and storage tanks, before it can become widely available as a primary fuel. Key alternative technologies currently supply the equivalent of only about 1 percent of U.S. consumption of petroleum products, and the Department of Energy (DOE) projects that even by 2015, they could displace only the equivalent of 4 percent of projected U.S. annual consumption. In such circumstances, an imminent peak and sharp decline in oil production could cause a worldwide recession. If the peak is delayed, however, these technologies have a greater potential to mitigate the consequences. DOE projects that the technologies could displace up to 34 percent of U.S. consumption in the 2025 through 2030 time frame, if the challenges are met. The level of effort dedicated to overcoming challenges will depend in part on sustained high oil prices to encourage sufficient investment in and demand for alternatives. Federal agency efforts that could reduce uncertainty about the timing of peak oil production or mitigate its consequences are spread across multiple agencies and are generally not focused explicitly on peak oil. Federally sponsored studies have expressed concern over the potential for a peak, and agency officials have identified actions that could be taken to address this issue. For example, DOE and United States Geological Survey officials said uncertainty about the peak's timing could be reduced through better information about worldwide demand and supply, and agency officials said they could step up efforts to promote alternative fuels and transportation technologies. However, there is no coordinated federal strategy for reducing uncertainty about the peak's timing or mitigating its consequences.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: With regard to GAO's recommendation, EIA staff is pursuing a project focused on long-term global oil scenarios that considers key drivers such as demand, resources, recovery factors, and other factors that may affect supply. EIA has been actively seeking input and advice from outside experts in petroleum geology and engineering. Earlier this year, EIA staff participated in the Reserve-Growth Workshop hosted by the U.S. Geological Survey (USGS). Subsequently, in the context of a briefing on the recent USGS assessment of resources in the Arctic region, EIA and USGS entered into a dialogue regarding methodologies for assessing the long-term availability of oil. We expect these discussions to continue. EIA's 2008 Annual Energy Conference, held in April 2008, included a session entitled "Peak Oil: Has the World Oil Production Peaked." EIA estimates that over 600 persons attended the session. EIA staff made a presentation on their ongoing project. In addition, and recognizing that long-term oil production scenarios will vary based on underlying assumptions, EIA invited two other recognized experts (Matt Simmons of Simmons & Company International and Peter Jackson of Cambridge Energy Research Associates, Inc.) to provide their views on this topic. EIA also made all 3 presentations available on its web site. EIA believes that this action addresses GAO's recommendation and also provides a solid framework for future steps.

    Recommendation: While uncertainty about the timing of peak oil production is inevitable, reducing that uncertainty could help energy users and suppliers, as well as government policymakers, to act in ways that would mitigate the potentially adverse consequences. Therefore, the Secretary of Energy should take the lead, in coordination with other relevant agencies, to prioritize federal agency efforts and establish a strategy for addressing peak oil issues. At a minimum, such a strategy should seek to do the following: (1) monitor global supply and demand of oil with the intent of reducing uncertainty surrounding estimates of the timing of peak oil production. This effort should include improving the information available to estimate the amount of oil, conventional and nonconventional, remaining in the world as well as the future production and consumption of this oil, while extending the time horizon of the government's projections and analysis; and (2) assess alternative technologies in light of predictions about the timing of peak oil production and periodically advise Congress on likely cost-effective areas where the government could assist the private sector with development and adoption of such technologies.

    Agency Affected: Department of Energy

 

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